Saving towards retirement is a concept that everybody understands. We must save diligently from our paychecks while we work so that someday we can live a comfortable life without them. The more we are able to save and the earlier we begin that process, the sooner we can begin the freedom and enjoyment of a relaxing retirement.
But the road to retirement is a long and winding one. Each of us joins it at different times, we make different turns, and we exit at our own destinations. The individuality of the journey to retirement makes it unique in that we find ourselves on the longest and most important road of our lives without a perfect map.
Reaching retirement is almost an afterthought following an entire career of planning. What happens now? Having spent half of your life saving and working towards this goal, what do you need to do to make sure that you can afford to continue living your lifestyle without receiving a paycheck? There are a few important things you can do upon reaching retirement to help you live with both the freedom and peace of mind you desire but the first thing you should do is congratulate yourself on a tremendous achievement. Once you’ve done that you can start with these three basics.
Evaluate Your Recurring Expenses
In order to put together a plan to live your preferred lifestyle, you need to understand what your monthly expenditures will be. Some old familiar expenses like train passes, parking, and dry cleaning may be left behind completely with the departure from your working life. However, some new expenses are also sure to appear as you may need to take on the costs of additional healthcare expenses, long-term care insurance, and hopefully the monthly costs associated with a new or re-invigorated hobby in retirement. Calculating how much you need to support your wants in terms of hobbies and entertainment alongside needs like housing, taxes, and food can help inform you and your advisor how to best budget for everything.
Decide When to Take Social Security
While you were socking away a portion of your paycheck toward a retirement savings account, another portion of your paycheck was being siphoned off for your retirement as well. When you decide to begin taking your Social Security benefit will impact how much you will receive. If you were fortunate enough to leave the workforce early, you will need to wait until you have reached your full retirement age in order to receive the full benefit. Conversely, if you can delay receiving your benefit until after your full retirement age, you will be paid an additional 8% per year for doing so. Of course, the social security program is no guarantee and is subject to change. Be sure to keep a finger on the pulse of any Social Security benefit updates as you approach the decision about retirement age.
|1943 to 1954|
|1960 and Later|
Full Retirement Age
|65 and 2 months|
|65 and 4 months|
|65 and 6 months|
|65 and 8 months|
|65 and 10 months|
|66 and 2 months|
|66 and 4 months|
|66 and 6 months|
|66 and 8 months|
|66 and 10 months|
Shift the Focus to Income
Over the course of your career saving towards retirement the focus of your portfolio will have been growth. Maximizing the size of your retirement nest egg, within reason, was the primary goal for you and your advisor. Now that you have reached retirement, you will need to take another look at the makeup of your portfolio to ensure it is better suited for your new income needs. Particularly if you have retired early and are choosing to hold off on claiming your Social Security benefit, an income-focused approach can help fill the gap until you choose to do so.
Investing for income doesn’t have to mean loading up a portfolio with only bonds or other fixed coupon-paying assets. A total return approach is still a viable means for generating monthly income by re-balancing monthly as needed to generate cash. There are no guarantees in investing however. You should be aware that with all investments there is a risk of losing your principal and that income from investments may fluctuate and is not a guarantee of return.
Of course, these are not the only things you need to be aware of at this most important juncture of your life. Working with a financial advisor in retirement is especially valuable. Just as they did at the beginning of the road, your financial advisor will help you to put together a plan to suit your individual needs. This time however there is no abstract finish line that you are working towards. You have already won the race. Your goals for your money are almost all tangible now. Whether that means visits with loved ones, travel, long overdue golf lessons, or anything that floats your boat – even an actual boat. Congratulations on reaching retirement, it’s time to relax.
To learn more about income strategies in retirement, please contact your financial advisor.