Transition to retirement
Maybe you’ve spent the better part of your adult life planning for retirement. You’ve been saving, decided where to live and thought about how you want to spend your days when you’re not working (or working less).
Making the transition to retirement will be different for everyone. For some people, it might be a last day in the office, a big retirement party and days spent traveling, golfing or babysitting grandchildren. For others it might be a very gradual transition, maybe just reducing working hours at first and leading a fairly similar lifestyle.
Whether you are jumping or wading into retirement, it’s time to readjust your retirement plan into transition mode. There are three main areas to consider: financial, as you go from earning income and saving to making withdrawals; health, particularly because retirement could affect your health insurance coverage; and lifestyle because you may have a whole new rhythm to your days.
Let’s take a look at some of the key points for each topic:
Have I saved enough? This may be the most fundamental question you need to ask yourself as you approach retirement. If the answer is no, then you may need to think about deferring retirement, continuing to generate income in a part-time job or re-thinking your retirement lifestyle. If you have enough savings to cover your basic needs or still have a few years to grow your assets, you may be in a position to consider increasing the risk level of your asset allocation in an attempt to generate the potential for higher returns, but this is by no means a guarantee that you will indeed achieve those returns.
Another big step in the direction of retirement is starting to make withdrawals from your retirement accounts and receive Social Security payments. While there are a few set rules about how early or late you can start to make withdrawals and receive social security, you will have to think about the optimal timing for you. Much of this will depend on how much you (and your spouse) have already saved and whether you are continuing to work past the age of 65.
If you are feeling very comfortable with your level of savings, this may be good time to think about starting to give away assets in a tax-efficient way to loved ones. You may also find it fulfilling to pass on assets while you are still living, either to loved ones or to philanthropic causes that you have been involved with.
What is your plan for health insurance when you retire? That’s one of the most important health-related questions to make sure you have thought through. This will depend on whether your health care plan is linked to your employment and whether there are provisions for after you retire.
If you are approaching 65, Medicare may be your answer to this important question. Be sure to get to know the system around the time you are 64 so that you are prepared for the six-month enrollment window around your 65th birthday. Medicare has many parts and different types of supplemental coverage. How you use it will depend on your own personal health situation and any other coverage that you may have.
Maintaining your health is as important as maintaining your health insurance. With a potentially new daily schedule, you may need to think about a new exercise routine if the old one was a quick stop in the gym before or after work. Similarly, if all of your health care providers are located near your old place of work, do you need to think about finding new ones closer to your home?
Retirement should be fun, but change is always difficult. Skip the stress as much as possible by rehearsing your retirement ahead of time. What is a retirement rehearsal? Somewhere two to five years from retirement, take a one-week vacation with your partner if applicable, and rather than flying somewhere exotic or visiting family or crossing an item off a bucket list, sit at home and do absolutely nothing.
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.
For some people, retirement is going to be a gradual process, reducing working hours as a first step. But, If you are planning to make a sharp break from your working life and looking forward to free time and a more flexible lifestyle, it’s still a good idea to make sure you have some kind of schedule because many people find the sudden lack of their old rhythm quite jarring. It can also lead to unhealthy habits, such as eating too much, or simply feeling down because you don’t have the daily interaction with colleagues. Making a schedule can help you fit in a workout as well as remember to plan a few lunch dates, tennis games or meetings with a book club.
Perhaps you’ve actually got grand plans for your newfound time, such as going back to school, starting a new business or getting more involved in a philanthropic cause. All of these activities are great for mental stimulation. For those looking for a “next act” these can be exciting new experiences and ways for you to learn more or earn more – or to share your wealth of experience and assets with others.
Planning for retirement is a lifelong series of steps and readjustments. This will continue even as you approach your actual retirement and begin to transition your lifestyle. It’s a time of change, which can be both exciting and stressful. But thoughtful planning and preparation will hopefully help you make the most of the next chapter in your life.
Investing involves risk, including loss of principal invested, and you should carefully consider your own time horizon, goals, objectives and tolerance for risk before investing. Asset allocation does not guarantee a profit or protection against loss in a declining market. This discussion is not intended – and should not be relied upon – as investment or financial advice.