Last year 59% of Americans said they had resigned themselves to working longer, with more than a third of them admitting they may never be able to retire.
According to the Retirement Industry Trust Association, the expected retirement age for current workers is 64. Two in five workers say it will take a miracle for them to be financially secure in retirement.
If you count yourself among the millions of Americans planning to retire in the next few years, do you have a plan? Prior to turning in your resignation notice, optimal timing is key to starting and maintaining your retirement.
We asked financial experts to share their tips to help near-retirees decide when to make the leap to retirement. These steps will prepare you emotionally and financially to help ensure a smooth transition into the golden years.
If you’re still working and want to retire soon, try easing into the transition by reducing your work from full-time to half-time for a few years, then down to 25% for a few more years. Then, keep it at that level or stop altogether, as you prefer.
“Create space to envision your post-retirement life before turning in your notice or exiting the business,” said Deborah Meyer, Certified Financial Planner and founder of WorthyNest.
“I would suggest reading ‘The New Retirementality’ by Mitch Anthony. The book does an excellent job of helping near-retirees not only consider the financial implications of retirement but, more importantly, the emotional and social aspects.”
This strategy of progressing slowly into retirement offers three major benefits. It lets you start the transition to less work sooner than if you hold out for going from full-time to fully retired at once.
In addition, it reduces the sequence-of-returns risk in your investment portfolio, where having a market crash early in your retirement forces you to eat into your portfolio’s capital, greatly increasing your risk of running out of money.
Finally, it lets you gradually figure out what you want to do during retirement, so you don’t suddenly realize you’re bored and unsure how to fill your days.
“What I’ve seen with my clients is that those who slowly wade into retirement by gradually decreasing their work have a much better transition than those who go from full-time work to full retirement, dropping everything,” said Nick Covyeau, Certified Financial Planner and owner of Swell Financial.
Retirement is a learned skill and something you must train yourself how to do. Covyeau suggests it takes time, patience, and a new set of tools than the previous chapter of your life.
“Even the most detailed plans don’t always work out,” said Danielle Miura, Certified Financial Planner and founder of Spark Financials. “Before you retire, prepare for possible worst-case scenarios: a market downturn or a health setback.”
Make Retirement Fun
Find something you enjoy doing that you can do for a long time that brings in at least some money. This will keep you active, reduce the size portfolio you need, and/or increase how much you can spend in retirement, and it may let you leave a larger bequest to your kids or a favorite charity.
“Having a purpose is paramount,” said Joe Dunat, wealth advisor at Sturkie Wealth Management. “Find something that will continue to give meaning and routine.”
Watch Your Finances
It’s vital not to get too carried away at the outset of retirement and spend too much of your savings. Monitoring and planning your budget must continually be done so you can always keep an eye out for any setbacks or unexpected costs that arise.
“Determine what your expenses will look like for your retirement,” said Miura. “Will you be downsizing your home? How much will you be spending on traveling? Will you be debt-free before retirement? Don’t forget to include inflation and taxes in your calculation.”
You should also avoid making sizable purchases early in your retirement years.
According to Covyeau, “Such purchases will rob your account of future compounded interest and leave a lasting negative impact on the rest of your retirement.”
Plan for Taxes and Healthcare Expenses
Besides the budget, retirees need to consider several other concerns, such as taxes, healthcare, and estate planning. Allocating enough time to these areas is crucial.
“Have a trusted team of professionals in your corner for the larger decisions in your life,” Dunat said. “Navigate the tax consequences of any retirement withdrawal strategies with a tax professional and financial planner. And have a plan for your next of kin to make sure your estate doesn’t get held up in probate by working with an estate attorney.”
“As you transition to Medicare, a health insurance agent can make sure your doctor and any medications will be covered under your plan,” he added. “The happiest retirees we know do not try to make these decisions on their own, they have a person in their corner.”
The Bottom Line
Financial experts agree that near-retirees consider finding something they enjoy doing in retirement, especially in the first years after a full-time career. And don’t overlook preparation for taxes and healthcare expenses to ensure a smooth transition into retirement.
As a bonus tip, Covyeau points out the importance of being on the same page as your spouse.
“You’re in this together. Learning how to retire together is a fun and exciting adventure that will take time,” Covyeau said. “You’re going to find yourself with more time on your hands, wrestling through potential loss of identity through no longer working, and maybe in a new physical location after moving. All these massive changes are going to take time to adjust to and odds are, you and your spouse may process them at different speeds.”
Retirement is a major shift, and working through this transition well with your spouse before and during retirement is important. It’s essential to be flexible, communicative, and adaptable, as getting comfortable in retirement together will take some time getting used to.
“Have fun with it. Be creative and make retirement your own,” Covyeau added.