How to Navigate the Transition to Retirement

Dana Anspach

July 7, 2021

You’ve thought about retirement for years. Now, here you are getting close, and you feel… anxious, nervous, and for some, even terrified.

After putting away money for so long, the thought of spending that savings makes all kinds of 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? Once a year as a lump sum, or monthly more like a paycheck? Should you take money out of your retirement accounts or out of the brokerage account investments in stocks and mutual funds that you have accumulated?

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

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

So many questions.

Start With Your List of Questions

The first step is to organize your questions. Write them down.

Next, 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 much you will spend, how you’ll plan for taxes, and how you’ll budget for health care items.

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

Then 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?

Now it’s time to find answers. Not any ole answer will do. Meaning 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.

Find Customized Answers

Take question number two on 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.

What is the thought process behind such recommendations?

The man is single, has no previous marriages, is not in great health, and has a family history of short longevity. Starting benefits now makes sense based on his circumstances.

The woman is married, not working, and her spouse is much older than she. When her husband passes, she will get his higher survivor benefit amount, and her own benefit amount will stop at that time. This means her benefit amount is not likely to pay out for very many years as the survivor benefit will replace it, so it makes sense for her to begin her benefit as early as possible.

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 twenty or more years away from retirement. But when rules of thumb are naively applied to the withdrawal phase, they can cause you to short-change your retirement.

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.

Planning Pays Off

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 are willing to offer their 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 decumulation planning. The Investments and Wealth Institute offers a search tool to find a Retirement Management Advisor, or RMA®, a designation acquired by over six 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, think about how they might 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, and they wanted the confidence for themselves and for their spouse that comes from working with professionals. We provide that confidence 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 all be things you can safely navigate.

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