Today’s insightful question explores the behavioral finance side of retirement planning – specifically, which financial habits you should leave in the rearview as you transition into retirement.

In this week’s Money Wisdom Question Series, Jake Doser, CFP®, CPWA® joins us to share the top three thought processes you should unlearn before you retire.

Focusing Solely on Growth

The first thought process that you should begin to rework in your mind concerns growth. Asset growth is a powerful tool that has likely served you well throughout your working years. In your 20s throughout your 50s, your primary goal was to grow your savings for retirement. During this period, you didn’t need to worry as much about market volatility, as historically, the stock market has tended to grow over time.

However, this single-minded focus on growth is only pertinent prior to retirement. Once you’ve retired, that money is now your income. It is also what will supplement your other sources of income such as Social Security or a pension. The last thing you want is to be worried about running out of money in retirement because you were exposed to too much risk. By adjusting your investment strategy, you can shift your objectives from asset growth to wealth preservation, income generation, and tax efficiency.

Deferring Taxes Until Retirement

Another thought process to unlearn as you approach retirement is having a short-term perspective on minimizing your tax burden. This financial habit is common during your high-income earning years when the goal is to minimize taxes today by deferring payment until retirement. While it’s often assumed that your income in retirement will be lower and therefore taxed at a lower rate, this isn’t true for everyone.

It’s important to evaluate your lifetime tax obligation with the guidance of a tax professional. You may discover that paying some taxes now – whether through withdrawals or Roth conversions – could place you in a better financial position if taxes increase in the future.

Only Saving and Never Spending

A third mindset that could be damaging to your lifestyle in retirement is that you should only save and never spend. This doesn’t mean you should go on a buying spree, but rather, stop denying yourself the small pleasures you sacrificed while saving for retirement. Essentially, you put off spending before so you can live life more generously now.

In a general sense, retirement is no longer about saving. If you’re still hesitant to spend, however, a well-crafted financial plan can help you do so more confidently. This plan equips you with the necessary tools and strategies to overcome any obstacles, ensuring you can live your life in retirement to the fullest.

In Conclusion

By unlearning these habits, you’ll be better prepared to enjoy a secure and fulfilling retirement. With the guidance of a financial advisor, you can focus on preserving your wealth, managing your tax obligation, and spending wisely to make the most of your retirement years.