Many of us work and save our entire careers in hopes of
achieving a relaxing, comfortable life during retirement. However, the actual
process of transitioning into retirement can bring about stress and worry.
It doesn’t have to be that way — being prepared can ease you
into this new stage of life and help you get ready for any upcoming changes.
Having goals for retirement and tracking your progress toward those goals are
important throughout your life but become increasingly more crucial as
retirement nears.
Take stock of your situation
As life expectancy increases, the time you spend in
retirement can begin to rival the time you spend working and saving for
retirement.
“To prepare for the transition to retirement, a financial
planning review is essential to understand how all of the pieces come together
— how are you positioned for retirement, what your options are, what lifestyle
can you afford, when can you afford to retire, how conservative can you afford
to be with investing your retirement savings, what pot would you draw from
first,” says Cynthia Turoski, managing partner at Bonadio Wealth Advisors in
Albany, New York.
“Decisions and actions you take early on can impact you
immediately or down the road, and you might not see that impact until it’s too
late. It’s better not to guess,” she adds.
During the review process, you’ll want to stress-test how
your retirement planning pans out under varied market environments and in
different situations, such as a change to your retirement age or life
expectancy.
If you learn you can reach your goals, you’ll gain peace of
mind. If not, revisiting plans and weighing trade-offs can help you find tweaks
to make it work, Turoski says.
Understand the coming life change
Beyond the financial, there are psychological and emotional
aspects to think through.
“All the focus in preparing for retirement is usually
evaluating whether someone has enough money to retire,” says Philip Lubinski, retirement
income specialist and founder of IncomeConductor, a retirement planning
software company in Hartford, Connecticut.
But Lubinski says he has worked with clients who weren’t
emotionally ready to retire, even if they were financially able to do so.
“You can only play so much golf or go fishing. How will you
fill the rest of the time? For many pre-retirees, their work is what gives them
a sense of purpose and value,” he says. “Those emotional needs must be replaced
by something else other than work in retirement.”
Adjust from saving to spending
Changing your mindset from saving for retirement to spending
in retirement can be a challenge, both psychologically and financially.
Namely, you'll want to consider how you're balancing risk,
as well as strategies that can prevent you from having to pull money out of
investments when the stock market is down. Selling at a low, especially early
in retirement, can significantly reduce what's left to fund your remaining
years.
One idea: allocating a portion of your portfolio to cash or
fixed-income investments from which you can draw to cover expenses without
selling equities in a down market, says Matt Masterson, partner and wealth
advisor at RegentAtlantic in Morristown, New Jersey.
As for how much risk you're taking overall, you'll likely
want to tone down risk as you move through retirement, but it's important not
to overdo it.
“Making the portfolio too conservative will expose retirees
to inflation risk that a conservative portfolio will not address,” says
Lubinski of IncomeConductor.
Build an income stream
You may no longer receive a regular paycheck, but income
still plays an important role during retirement.
“Not having a paycheck can impact your psyche and
willingness to spend in retirement. Suddenly, every purchase may cause doubt
and second-guessing,” Masterson says.
You can establish a monthly income stream through your
investment plan to mimic getting a paycheck.
“Make sure you are targeting the right amount of income
needed,” Lubinski says, by evaluating your expenses thoroughly. He suggests
including expenses that might start later in retirement or change over time for
reasons other than inflation.
Consider not just your investment portfolio but other
building blocks for income, including Social Security, pensions and annuities.
Keep in mind that where and how you draw income has tax implications in
retirement, so it may be worth working with a financial or tax advisor to help
tailor a strategy for your situation.
Look after your health
Good health is key to a successful retirement. It allows you
to remain active and enjoy your retirement years, but it can also help cut
costs.
One of the greatest unknowns in retirement planning is the
impact of health care expenses. As you move toward retirement, understanding
and planning for potential long-term care costs, which are typically not
covered by Medicare, becomes increasingly important.
It may also be wise to engage a financial advisor while
you're in good health, says Lubinski. Not only can they walk you through these
complicated health care and insurance decisions, but you'll have someone on
your side for the long term.
“At some point, all retirees begin losing their financial
acumen and may not make wise decisions,” he says. “Having an advisor on board
at the beginning of retirement can give retirees comfort knowing their
survivors will have someone to turn to who is trusted.”
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