$52.4 billion dollars of unused vacation pay is lost every year. What if you could use some of that money to improve your retirement outcomes?

Retirement Rehearsal

What we’re trying to do is ask a question: what could we learn about ourselves if we took a one-week “dry run” at retirement? In this example, you’re about two to five years from retirement. I started to explore this idea when I kept hearing from recently retired clients about all the various aspects about retirement they hadn’t considered.

I thought, how can this be? We’ve dedicated all this time and burned all these mental calories around the idea of a retirement plan. For many clients, this is THE major life event that they’ve been saving up for all these years. We think, “I’m going to be financially independent, I’m going to be able to separate from my career and I’m going to have twenty or thirty years of leisure ahead of me. I’ve been saving up for this most of my adult life.” How can retirement be so different in reality than what we had dreamed on paper?

What we’ve found, and admittedly this is anecdotal evidence, is that it’s quite hard to plan for such unknowns. After all, I’ve never been retired myself. While planning with a pre-retired person, it is hard to predict outcomes. Obviously, the client has never been retired. None of us have a crystal ball. If we did, especially lately, the investment planning part of retirement would be much easier. What we’re trying to do is turn intangibles into tangibles.

I started thinking about the idea of what we’re coining the “retirement rehearsal.” As I looked into the idea, I found some strange statistics. The numbers will surprise most. According to an article in the Wall Street Journal by the end of this year, employees will have up to $52.4 billion in unused vacation pay. To back up these figures, I found an additional article on CNBC.com that stated this number is at a forty year high. People are earning vacation pay, maybe they use a bit of it, but they are accumulating more than they spend. By the time they retire, some clients have literally hundreds of hours of vacation time that they don’t plan to actually use. Most of the time, you can’t take this unused vacation pay with you. Usually the majority of vacation pay is forfeited or it’s paid out in pennies on the dollar. Maybe twenty percent of total accumulated vacation time ends up in a final paycheck.

After further investigation, I found that only about half of states have specific rules regarding how much vacation pay comes with an employee when they retire or separate service in any fashion. I was surprised that there isn’t an actual plan in most cases. It seems that most people lose their vacation pay when they retire. I thought, since we are trying to turn intangibles into tangibles, and because we’re going to lose a bunch of this vacation pay anyway, we should create a plan to solve the two issues at once. Ironically, the more unused vacation pay that one has, the harder it will be for them to retire simply because they’re out of practice.

We can set ourselves up for success, and have a Retirement Rehearsal.

What is a retirement rehearsal? Somewhere two to five years from retirement, take a one week vacation with your spouse, and rather than flying somewhere exotic or visiting family or crossing an item off a bucket list, I want you to sit at home with your spouse and do absolutely nothing. I want you to have a rehearsal for retirement.

When we think about our plan for retirement, we often think about all the leisure time we will have and all the time to have once in a lifetime experiences that we simply didn’t have when we were working. We paint an ideal picture.

Of course when talking about painting the picture, we imagine these big fun items because that makes the necessity of planning a bit more concrete and thrilling. It would be very boring and substantially more difficult to plan for the in-between times, the times that are much more intangible. However, it’s those intangible times that are likely to amount to 95% or more of your actual time spent in retirement.

Think about it: How many trips are you going to take in a year? Two trips? Five trips? Ten trips? Even if you’re taking ten trips a year, how long is that going to last? The first few years of retirement? Eventually you’re going to run out of things to do. All these dreams, you’re going to cross them off your list. Then what?

It’s not uncommon for me to meet with a client who is two or three years from retirement and imagines themselves hitting all the golf courses locally, then traveling to hit a few courses in Florida or California, or wherever they and their buddies want to go. Then I meet with them every six months after they’re about two or three years into retirement, and they tell me, “I’m absolutely sick of golf. I’m all golfed out! I crammed ten years of golf into the last two years and, frankly, I’m sick of it.”

I’m absolutely sick of golf.

Taylor Schulte, CFP® the founder of Define Financial, a fee-only financial planner in San Diego, adds: “A retirement rehearsal might just show you that you’re really not that interested in retiring at all. I see more and more clients reinventing themselves in their 60’s and doing something completely different. Many will live well into their 90’s after all. Take this time to identify what it is you really enjoy doing and what drives you. If it’s not continuing to work at your current job, it might be a part-time gig at a local business or even volunteering at your favorite organization. Most of us have this inner desire to give back to the world and it’s often very difficult to just hang it up and play golf every day.”

I need a rehearsal for retirement because these boring times are actually going to be the most difficult to plan for because they are intangible. We simply don’t know what they consist of. That’s why we have to rehearse. Potentially, they’re one of the most dangerous parts of a retirement plan because boredom kills. That’s what I want to talk about.

What should we use a retirement rehearsal to plan for?

We should keep our eyes out for two specific things. We want to measure our spending; budgeting is the most important part of financial planning and retirement planning. Additionally, we should measure our attitude and temperament.

Measuring spending is straightforward. How much are you spending during your downtime? Remember, the retirement rehearsal is sitting at home for a week with your spouse and doing nothing, no travel. Are you spending more than you thought? Let’s say you planned to spend an average of $5,000 monthly while in retirement. Divide that by four weeks in a month and during your one-week retirement rehearsal, if you find out that you’re actually spending 50% more than you thought you would have, we need to take that new data and go back over our retirement plan and modify that budget.

Remember that downtimes are probably going to be 95% of your total retirement. Any discrepancies discovered from this rehearsal need to be reflected in the overall retirement plan. If you are spending fifty percent more than you thought, that is a big inconsistency and needs to go into the retirement plan. You’re either going to have to increase your contributions, or delay your retirement date. That would be shocking news to discover while already in retirement, but there is still time to react if discovered during a rehearsal. There is still time to modify the plan. That’s why one should have a rehearsal two to five years from retirement so that there is some time to make adjustments if needed.

If there isn’t a well thought out written financial plan, the retirement rehearsal doesn’t make a lot of sense because there is no plan to revise. (Hopefully you have a plan if you are that close to retirement!)

What if you’re actually spending substantially less during the retirement rehearsal? You may be skeptical; who actually spends less than they thought they would spend? It happens more often than you would think. If you are actually spending less during the retirement rehearsal, then we get to do one or two pretty amazing things with the plan. We can update our plan with this new lower spending goal, and then either plan for more frequent big-ticket items, or retire earlier.

You actually get to retire earlier than you thought!

This is the polar opposite of an increased spending outcome, where we may have to either contribute more to retirement accounts or work longer. The reverse is true if we’re spending less than we thought. We get to contribute less or, if we convert that into days rather than dollars, we get to retire earlier. How great is that? By spending vacation pay that was likely to disappear anyway, we might have just bought ourselves six months or more of earlier than planned retirement. It has a really nice ring to it, vacationing your way to an early retirement. This is why we need a retirement rehearsal.

Number one is to assess spending. Number two is to assess attitude during the Retirement Rehearsal. When assessing attitude, the big thing to look for is your boredom level. Are you bored? Are you and your spouse sitting in the living room staring at each other and just bored through your teeth? If you are, this is a huge red flag because boredom can drop a nuclear bomb on a retirement plan. I’ve seen this happen dozens of times and oftentimes people attempt to break out of this monotony with extra spending. That’s a budget buster and will kill your plan every time.

Are you bored?

Being a “budget tyrant” is not necessary. This is your money after all. You can spend it any way you like, but our clients and blog readers count on us to counsel them. Because we work with retirees, we’re able to share this learning curve in advance with our readers. I think that’s where the value of the blog really lies. It’s the client’s money to spend, but keep in mind you’re living on a fixed income so you’ve got as much as you’re going to have. Too much budget busting early on in retirement is literally stealing money from an older version of yourself. Don’t do it.

If you try a retirement rehearsal and you find out that you are bored, don’t panic. That’s why we’re rehearsing, so we have a plan ahead of time. Keep in mind we’re two to five years from retirement. There’s plenty of time to fix this boredom. How do we fix it? You could find a hobby. You could find volunteer work. You could ask other retirees what they do to pass the time. Since we are rehearsing and trying to take away a bit of the mystery from retirement, don’t be afraid to delay retirement for a few years if you find you’re bored. Now you’ve removed some of the mystery and anxiety from retirement. In this scenario you’re practicing retirement. You’re pretending you’re retired to mentally have some self-discovery. If you discover that retirement really isn’t your thing and you’re bored, work a couple more years. Take some more vacation pay that you’re going to lose anyway. Take some of those trips.

A lot has been written about a practice retirements. A practice retirement is different from the retirement rehearsal.

If you find yourself bored, don’t be afraid to delay retirement a few years. Why rush into something that you’re already finding out you don’t like as much as you would have thought? A grass is always greener scenario, except you’re able to check out the grass on the other side of the fence.

In summary, you’re probably going to spend twenty to thirty years in retirement directly after spending twenty or thirty years, or more, in a career. Don’t you think you could use a rehearsal? Put another way, eight hours a day has been occupied by work for the last however many years of your life. How are you going to occupy those eight hours a day that were previously being used by your career? How are you going to occupy that time once you retire? Losing a “work identity” can be a very serious issue for some people. Attempting a few trial run retirement weeks before your permanent retirement could be a powerful experiment in self-discovery and helping you find your post-career self.

That’s the point of the retirement rehearsal: finding your post-career self and avoiding boredom.