People who are getting ready to wrap up their careers and leave the working world often refer to retirement as “a new chapter” or “the next act” in their lives – and rightly so. As a pre-retiree, you may have even used those analogies yourself. That said, it’s helpful, and often invaluable, to play a leading role in determining how your retirement story will unfold.
An Outline for Success
You can start by plotting out exactly which options, resources and strategies you’ll need to take advantage of in the near future. A good starting point is to spend some quality time with yourself reviewing the following questions, and be sure to seek professional help in the areas where you yourself can not come up with all the answers.
“When exactly will I retire?”
Have you decided when you want to retire yet? Doing the math and all the calculations on personal and retirement savings and the amount of Social Security income you’ll receive will show you that even a couple of years can make a big difference in what your retirement income will be. For example, depending on your year of birth, you may not be eligible for full Social Security benefits until age 67 – and delaying Social Security benefits beyond that age may actually earn you “delayed retirement credits.” Waiting a few extra years may easily secure a few hundred extra dollars which could make the difference in having retirement years in which you just get by versus years that you can afford to do things that you really want to.
“How much money will I need?”
Back to the math and all the calculations … Once income projections are established, the other side of the ledger needs to be reviewed. What will your annual and monthly fixed expenses be? How about medical insurance, prescription drugs and related expenses; these are becoming a greater burden to retirees with each passing year. Then there are the “play money” expenses; what hobbies or interests to you want to fund each year?
“Which accounts will I use and when?”
These days, it’s not uncommon for pre-retirees to hold retirement assets in several different types of accounts, such as employer-sponsored plans, IRAs, annuities and regular investment accounts. You’ll probably need to think about which accounts to tap first. Generally speaking, the longer your money can potentially compound in tax-advantaged accounts, the more you may be able to accumulate for retirement overall.
“How much will I need to withdraw?”
There is no rule of thumb, such as withdrawing 5 percent of your balance annually, that fits everyone. Instead, you need to identify your specific cost of living requirements and plan accordingly. But consider this: if you were to withdraw 4 percent of a $500,000 nest egg each year, it would take more than 40 years to deplete the account (assuming 3 percent inflation and 6 percent investment returns annually). But by withdrawing 8 percent each year, you’d deplete the account in as little as 17 years.
“What will I do?”
While financial freedom, good health and free time are high on the list of desires for your retirement years, I have found it to be helpful to dig a little deeper and consider the need for meaning and purpose during these “golden years.” Beyond backyard gardening and more golf games, how do you want to spend your time? For every retiree I have advised, the answer is different. While I have clients who do garden and golf, I also have clients who volunteer, clients who take on part-time “fun” jobs, and clients who travel – both in the United States and abroad, and there are more than a few snowbirds! I have clients who pick up their grandkids after school and attend their sporting events; clients who revive old interests and who take up new hobbies. Some move out of the area seeking sun or snow or seasides. Universally, they spend more treasured time with family and friends, folks they enjoy hanging out with. We have a bit of fun and spend a fair amount of time in pre-retirement meetings considering the “what will I do?” questions; we have an insightful and effective workbook we keep on hand to guide you through some of these questions – feel free to stop by and pick up a complimentary copy.
“So What’s the Conclusion?”
There’s the old adage, “most people spend more time planning for annual family vacations than they do for retirement – which is the ultimate lifelong vacation.” If you’re among the millions of pre-retirees getting ready to turn the page to a new stage of life, it’s time to shift the planning efforts into high gear! Begin with the questions above, take them one step at a time, get feedback from family and friends, have fun with it! Remember, the planning you do now can have an enormous impact on your overall satisfaction, security and quality of life as you begin this next stage, the rest of your life.
