For most of your life, you’ve probably had a daily routine and during retirement, not only does your daily routine change, but your financial routine does as well. While you were working, you made sure to have a savings and wealth accumulation plan; you were focused on building wealth, but now, your goal is to spend it efficiently. When you’re going back to school on your retirement plan, you’ll recognize that this can be a challenging task.
Net Worth Versus Income
When it comes time to switch from earning income externally to spending your savings wisely, you should look at your net worth and income differently. You’re used to thinking of income as something that comes to you externally through work, while your net worth is something you build and contribute towards. Instead, think of your net worth as something that you actively tap to cover your expenses and your income as something that comes from yourself, not external sources.
What Does This Change?
Thinking about your net worth and income in this way may seem unactionable, but in practice, this comes with some serious changes to the way you utilize your money. All your life, you wanted to increase and maximize your income so that you could cover your costs, save, and invest for your future; your income was the backbone to living and achieving these goals. However, if you attempt to carry that mindset over to retirement, maximizing your income will leave you paying more in taxes than you need to, which could put you in danger of running out of the savings you worked so hard to build.
The backbone of your retirement is your savings and overall net worth rather than income. You’ll want to use your net worth to provide yourself with income by utilizing retirement accounts, dividend investments, rental properties, or other assets to cover your costs. Since you’ve already saved up and built your net worth, any excess income will be a dead weight on your retirement longevity.
Making the switch from saving to spending is like going from driving a car to flying a plane. It’s a whole new question to ask of your money and there are a lot of new tools, frames of mind, and opportunities to be aware of to navigate your retirement successfully. Rather than risking costly mistakes by learning the whole retirement game on the fly, working with one of our financial professionals can help guide you in achieving your retirement goals
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