5 Ways to Ease the Transition Before and After Retirement

December 27, 2019

You’ve worked hard your entire career, creating an exceptional track record at work and building a successful, fulfilling life for your family. Retirement is on the horizon – or, perhaps, it’s already here.

According to the U.S. Census Bureau, the average length of retirement is 18 years, and the average age at which people retire at 63. However, those numbers are changing as Americans are living and working longer.

Many of our clients plan to live out of their investment portfolio and to draw on Social Security after retiring. However, some clients occasionally have anxiety about not receiving a steady paycheck and can even start to obsess about their portfolio.

The key to financial success in retirement is to reprioritize your spending and to make sure your lifestyle aligns with your available assets. That’s why the period leading up to and immediately following retirement is critical. Use this time to prepare financially as well as mentally and emotionally for this major life change.

Here are five important things to keep in mind immediately before and after retirement to ease the transition and to make the most of this well-deserved stage of life:

  1. Remember that retirement is more than just a financial goal.

It’s important to plan for retirement from a financial standpoint, but it’s also critical to enjoy your retirement as much as possible. After all, retirement is more than just a financial goal. It’s a well-deserved stage of life that offers the ability to refocus your priorities and to devote your time to what matters most to you.

As you get ready for retirement, you will want to prepare yourself mentally, finding productive, fulfilling ways to spend your time, so that retirement isn’t a flat, two-dimensional experience. It’s an ideal time to travel, spend extra time with family and friends and pursue your passions.

  1. Take important steps when you’re six months from retiring.

As you approach the six-month mark before your planned retirement, there are a number of things you should do to prepare. Make an appointment to visit the local Social Security office in person for a face-to-face discussion about your options. Also, meet with your financial advisor to discuss how you will transition into retirement and to evaluate your plan.

In addition, this is the perfect time to consolidate and simplify your accounts, including old 401(k) and IRA accounts. In doing so, you’ll streamline your money management and have less to keep track of during retirement. Be strategic about rollovers, and work closely with your financial advisor to avoid withdrawal penalties.

As retirement approaches, you’ll want to make sure your estate planning documents are up-to-date. This is also a good time to update your estate plan and to ensure that you’ve provided for the people who matter most in your life. You’ll also want to make sure your medical directives and power of attorney documents are up-to-date and reflect your wishes.

As your retirement approaches, this is also an ideal time to pay closer attention to your spending patterns and to the things you enjoy doing that cost money, like golf, fishing, dining and travel. You should also strive to be debt-free by the time you retire. That means paying off your mortgage, car loans and business loans, if at all possible. The less debt you have going into retirement, the better off you’ll be.

  1. Keep in mind that asset allocation matters, even in retirement.

You should have a growth component to your portfolio to cover inflation, so you don’t erode your purchasing power over time. It’s a delicate balance, but the goal is to help your portfolio last as long as possible.

Every situation is, of course, unique, but generally speaking, as you get closer to retirement, your investment portfolio should be less aggressive, but still growth-oriented, offering a healthy balance between stocks and bonds. If you’ve invested in a way that is strategic and aligns your portfolio with your lifestyle, you should be successful.

  1. Pay attention to your spending after you retire.

To be comfortable financially, you want to make sure your retirement portfolio will last at least 25 years after you officially retire. Ideally, you will draw Social Security and have other potential sources of income. However, it’s extremely important to be aware of your overall spending once you transition to retirement.

Not surprisingly, your spending habits will change in retirement as you move from the structured daily work grind to a more relaxed phase of life. You’ll have fewer work-related expenses, like dry cleaning or commuting, but you will likely have more lifestyle expenses like travel, hobbies and sporting supplies. Anticipating these types of financial changes — and planning for them ahead of time — will help to give you peace of mind.

  1. Share post-retirement feedback with your financial advisor.

After you retire, check in periodically with your financial advisor to provide feedback about what’s working, what your expenses are and what your concerns are for the future. Your advisor can confirm that you’re on the right path and can help you make any necessary adjustments. When you’re invested in a way that’s aligned with your lifestyle, you can truly relax and enjoy your retirement.

Ultimately, retiring isn’t just a goal to check off your checklist. It’s a transition to a whole new phase of life. Pay close attention to how your portfolio is constructed before and after retirement and make the most of every moment.

Need help with retirement planning? Please reach out to us to get started.

AUTHOR:

JOEL GOODMAN, CFA