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How to Successfully Navigate the Transition to Retirement

Dana Anspach

May 27, 2024

You’ve thought about retirement for years. Now, it may be looming on the horizon, and you feel… anxious, nervous, and for some, even terrified.

The transition to retirement involves a mental shift, going from years of putting money away, to living off your acorns. Questions race through your mind. What if the market goes down? What if you don’t have enough? What if a health situation arises?

How should you withdraw your money; yearly, or monthly like a paycheck? Should you take money out of retirement accounts or from the brokerage account investments in stocks and mutual funds?

Should you start Social Security now, so you have some income coming in… but, wait, you’ve read you receive more if you begin benefits later; which is the right decision for you?

How much will you pay in taxes? Should you make quarterly tax payments? Or can you have taxes withheld from your IRA distributions?

So many questions.

You can successfully navigate this transition into your retirement years. With organization, planning, and when needed, professional guidance, you can experience a smoother, less stressful evolution. Here’s how you begin.

Start With Your List of Questions

The first step is to organize your questions. Write them down. Write down everything that comes to mind. It may be a tax question, an investment question, or a lifestyle question, such as what to do with your time once retired

Once you have a list of questions, prioritize them.

Start with broad, sweeping questions such as when can you afford to retire and how much will you spend. Then add planning-related questions such as how you’ll plan for taxes, how you’ll budget for health care items, or when you should start social security.

The last items on your list should be specific questions about which investments or products to buy.

The ten questions below from Lecture 12 of the How to Plan for the Perfect Retirement Course will give you a good start on what you’ll need to address to be ready for a transition into retirement.

  1. When should I retire?
  2. When should I start Social Security?
  3. How much will I spend in retirement?
  4. Should I rollover my 401k to an IRA?
  5. How do I budget for health care spending?
  6. Should my spouse retire at the same time as I do?
  7. What accounts should I draw out of first?
  8. Should I buy an annuity?
  9. How should I change my investments as I near retirement?
  10. How much can I withdraw without running out?

Once you have your retirement questions, it’s time to find answers. Not any ‘ole answer will do; you can’t read an article or two and know what to do. You need answers customized to your level of wealth, age, and overall goals. This is where a professional retirement planner can be useful. While you retire once, they help hundreds of people navigate the transition to retirement.

Find Customized Answers

Rules of thumb are useful when you are fifteen to twenty years from retirement. Once retirement is upon you, instead of rules of thumb, you need a financial projection model and thoughtful, accurate answers to the questions you have. While it can be time-consuming to construct this type of plan, it is the blueprint for the next 20 – 30 years of life.

Take question number two on when to start Social Security as an example. Maybe you’ve heard it is better to wait and start your benefits at age 70. For many upcoming retirees, this is true. Yet, in the recent year, we recommended a 65-year old male client begin benefits right away. And the month before, we recommended a 61-year-old woman begin benefits on her 62nd birthday.

While it is true, many people will be financially better off by delaying the start of their Social Security, it is not always true. An appropriate answer is one based on each unique situation. Here is the thought process behind the two recommendations above.

Customized decision making needs to extend to all areas, such as when to begin withdrawing from a 401(k), what investments to use, whether to downsize, move to a new state, or take a part-time job.

Such decisions need to be made based on your situation – not based on a rule of thumb. Rules of thumb are useful as a guide to heading in the right direction when you are many years away from retirement. But when rules of thumb are naively applied to the withdrawal phase, they may cause you to short-change your retirement.

Consider Hiring a Retirement Planner

When it comes to retirement planning, start with knowing yourself and your spouse. Much like home improvement projects, some of us are cut out to do-it-ourselves, some want a little help, and some of us need someone to do it for us.

With finances, if you are the do-it-yourself type, consider starting with an online retirement calculator such as the one offered by NewRetirement.com. Their tool is filled with links and blurbs that help you learn as you go, and their online Facebook group provides a community of retirees who chip in, offering knowledge and perspective.

If you don’t want to do it all yourself, seek a competent financial advisor, preferably someone with a specialty designation in the area of retirement income planning. The Investments and Wealth Institute offers a search tool to find a Retirement Management Advisor, or RMA®, a designation acquired by many of our in-house financial planners. The RMA® curriculum focuses on the unique risks and planning decisions faced during the retirement phase of life.

If you are the primary financier of the household, but your spouse isn’t cut out for it, consider how they may fare if something happens to you. Many of our clients managed their own finances for most of their working lives, but as they neared retirement, they realized the stakes were higher. They recognized their own cognitive functions may change, and desired a back up plan. They also wanted a plan in place for their spouse.

Here at Sensible Money, we provide confident transitions to retirement by offering a thorough retirement income modeling process that uses a set of defined metrics, what we call our Retirement Readiness Tests, to stress-test plans.

Whether you choose to do your own planning or seek assistance, planning pays off. People who start planning five years out from their desired retirement date report smoother, less stressful transitions to this new phase of life. And that planning includes the psychological side of the transition, as well as the financial one.

When you’ve taken the time to plan, you’ll know when and if you’re ready for retirement, and when you are, while the transition may not be free of all bumps, the things you encounter will be things you can navigate with confidence,