21 Sep 20200 Comments
Society would have us believe that as we age into our 60s, we should be at or close to retirement, that our greatest decisions should be whether we schedule a golf game or get together with friends for lunch.
Nothing could be further from the truth. Instead of slowing down as we age, many of us are finding this period of time, when our children are adults and out of the house, as an opportunity for self-exploration and reinvention.
The stage beyond midlife is emerging as a time of transition. According to social scientists, during this period, the pressure to produce or meet other’s needs is replaced by the desire to connect and give back to others. Some of us may feel called to leave the workforce – not to retire, but to create a business of our own in keeping with our skills and our values.
If you are drawn to take this journey, you must ask yourself: What will you do? And do you have the means to meet your responsibilities and cover your expenses during the transition?
To answer the first question, I recommend you consider:
-What accomplishments over your lifetime have given you the greatest intrinsic rewards?
-What activities or endeavors, paid or unpaid, make you feel happy, energized, satisfied or relaxed?
-What activities give your life a sense of meaning or purpose?
-What are some of the things you’d like to experience or accomplish in the future?
Grant yourself permission to dream, perhaps for the first time in your life.
In order to make sure that you don’t compromise your long- term financial goals as you begin to consider a new opportunity, there are several financial areas I recommend you strengthen:
1. Pay down any consumer debt.
Eliminate debt that may fluctuate with interest rates, including credit card debt, home equity loan balances and high interest auto loans. You want your monthly expenses to be more predictable as your income becomes less predictable.
2. Build up cash reserves to establish an emergency fund.
It is important to have a cash reserve of several months to several years of expenses, depending on how long you anticipate your income will be uncertain. At a minimum, I recommend six to nine months of cash be held in your bank account.
3. Review your current monthly budget.
Revisit your monthly household expenses, preferably before you initiate a major change to your income. Review your monthly recurring charges, being particularly attentive to those that can be reduced or modified. You may be surprised by how much you are able to eliminate completely.
4. Assess the options for your retirement plan.
No matter how tempting, I do not recommend cashing out of your former employer retirement plan to use the funds to cover current expenses. These funds are subject to ordinary income taxes upon distribution, as well as a 10% penalty if you are under 59 1/2 years old.
I do recommend either keeping your money in your previous employer’s plan, if allowed, or rolling your assets into a traditional IRA. Note that investment choices in an IRA are much broader – including individual stocks and bonds, than those offered in an employer plan.
My own midlife reinvention is proving successful. I left a Wall Street career that was draining me to create my own financial planning firm dedicated to helping others achieve similar transformations.
Sure, a fresh start in midlife is not easy. I’ve had to redefine who I was to myself and to the world. I’ve had to reduce my expenses to live within my means: selling the large home I raised my children in and our vacation home. I’ve had to keep to a spending budget while friends plan trips and travel. But none of what I’ve given up compares to the value of what I’ve gained, knowing that I followed my heart to live my mission.