Determining the most ideal time to retire is no easy task. In fact, transitioning from a typical workweek and paycheck to the uncertainty associated with how your life will change when you are no longer working can be difficult. Add on any financial insecurities around having enough money and you have what could be a perfect storm of stress during what is supposed to be a time of relaxation and enjoyment. In fact, according to the Employee Benefit Research Institute (EBRI), only 18 percent of U.S. workers would say that they feel very confident in their ability to retire comfortably. Preparation is key and there are some very important steps to consider if before you retire.
Develop a vision for your future self
What does your ideal life look like? What is your vision for life after work? Where will you live? How will you spend your free time — traveling, hobbies, grandchildren, volunteering? What are the things you have always wanted to accomplish? Too often, retirees fail to apply the same deliberate and strategic thinking they have applied throughout their working life. According to Elizabeth Resnick, M.A.,CPC, ELI-MP, Certified Professional Executive Coach in New Jersey, “People who look at retirement as this kind of panacea for their life with days filled with golf and lunches, rarely end up being satisfied. The best thing a pre-retiree can do is to look at their life in a purposeful way. Developing priorities and a life with meaning can help ensure that retirement can really be your “next best chapter”.”
Developing a vision for retirement may help ensure that you are spending the early years of retirement (when many retirees are in better health and have more wealth), focused on what is most important to you. Consider creating a written plan for the things you want to accomplish during retirement but be sure to examine how you measure retirement success. Resnick adds, “Retirement done right will give people a sense of balance that will help you create a life of satisfaction, fulfillment and meaning.” Remember, time is your greatest resource, not necessarily money.
Examine your numbers
After developing your personal vision, the next step is to determine the economics of your life. Do you know what the maximum amount is that you can spend on an inflation adjusted basis over your retirement? How much do you anticipate leaving to beneficiaries or charities? Do you have a plan for tackling a market correction or higher inflationary pressures?
Interestingly, statistics from the Certified Financial Planner Board suggest that only 31% of Americans have completed a comprehensive financial plan. Think about that for a moment– the majority of retirees do not have a clear financial picture. This often leads to a feeling of scarcity and never having enough financial resources to fund retirement. However, knowing your numbers and developing clarity can help highlight exactly how to make your vision a reality. You might even find that you are able to accomplish more than you thought was financially feasible.
It may also be helpful to review multiple scenarios. For example, consider reviewing scenarios that might include the financial impact of purchasing a second home at different price points, gifting to children/grandchildren or addressing unforeseen health care expenses. It may also be helpful to run numbers that include “front-loading” your retirement enjoyment by spending more in the early years and then reducing expenses later in life. Bottom line – knowing your numbers is the key to unlocking the game plan that may be necessary to pursue your goals.
Align your investments with your life
The transition from the accumulation phase of saving/investing to the distribution phase can also be difficult for investors to make. While it is critical to avoid being too conservative (so that you can outpace inflation over the long-term), you also need to be sure that you are not taking unnecessary risks, too. In fact, some retirees continue investing as though they were still in their 20s or 30s when a more balanced approach may be more appropriate. Consider rebalancing your portfolio so that it is consistent with the financial plan you developed and your life. Review worst-case scenarios and avoid allowing your emotions to rule your investment decision-making over time. Discipline, patience and properly earmarking your funds according to your goals is critical as you pursue your vision for the future.
Optimize Social Security, Pensions and Health benefits
Do not overlook the importance of having a game plan for Social Security. Since the average retiree will rely on Social Security for a portion of their income, it is critical to start benefits at the optimal time for your circumstances.
Additionally, be sure to factor in the vesting schedule of other benefits including pensions, profit sharing plans, 401(k) matches and company provided health benefits if applicable. While fewer companies offer these benefits, be sure that you retire at a time that strategically maximizes any benefits you are entitled to.
Health care expenses also require special planning. While health care costs continue to soar, many pre-retirees still fail to properly account for these costs in their retirement budget. Consider taking a closer look at your anticipated out-of-pocket health care costs prior to moving forward with retirement.
Planning for life after work can be overwhelming at first. However, developing a vision for retirement and understanding the financial impact of your choices before you make them can help bring financial clarity to your life. Since everyone’s situation is unique, consider speaking to your financial adviser to determine the most appropriate strategies for you.
Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com, www.bringyourfinancestolife.com & www.Independentwm.com. LPL Financial Member FINRA/SIPC.