Navigating the Transition to Retirement: Key Financial Steps

Making the transition from working to retirement can be exciting, but it is also a challenging time in your life. There are several key financial steps to ensure that you have enough resources to enjoy your retirement.

“Proactively planning for retirement helps ensure you have enough for when you choose to retire or in the event unforeseen life changes present themselves, such as your health, job loss, disability, or caring for your loved ones, ” said Alissa Maizes, a financial planner and founder at Amplify My Wealth.

Manage Your Expenses

For many older workers, retirement may be the first time in their adult lives that they are not working or receiving a paycheck. Depending on your savings and investments, this can present a big challenge for meeting your financial needs. Take this opportunity to review your budget and make adjustments as needed.

“Adjust your projected expenses to add potential additional costs such as medical, travel, long-term care, and COLA (cost of living adjustment),” Maizes said.

If your finances seem tight, try to streamline them as much as possible. Trim subscriptions and services you don’t use, and make sure your money goes to the things that matter most. You’ll also want to budget for additional expenses as you age, like increased healthcare costs.

If you find a larger shortfall in your budget, you may need to cut larger expenses, such as selling extra vehicles or downsizing to a smaller, less expensive house.

Determine Your Income Sources

List all your sources of retirement income. How much will you be receiving from Social Security? Do you have a pension or annuities? You will need a clear view of all your available income streams.

To maximize your Social Security income, you may wish to wait until age 70 before you claim benefits. Claiming a Social Security benefit earlier will result in a smaller monthly benefit amount. Many retirees continue to work part-time, which can provide additional income and social engagement.

Curate Your Investments

Now, turn to your investments. Do you have a 401(k) plan or individual retirement account, such as a traditional IRA or a Roth IRA? Make note of your balances as well as any other investment accounts that you may have.

Once you approach retirement, you may want to take a more conservative approach to your investing. Stocks tend to be riskier than bonds, but offer greater growth potential. As you approach retirement, try reducing your stock allocation and increasing the amount of bonds and short-term investments. If you have a target date fund, these will automatically rebalance the mix of bonds and stocks for you as you age.

Another strategy you can use is the bucket method. With the bucket method, you have three separate buckets for your assets. One bucket is for your immediate money needs, one bucket is for your short-term savings, and one bucket is for your long-term goals.

And if you need extra help, a financial planner can help you decide what accounts in your portfolio to tap first and how much to withdraw from each account.

“Don’t leave your plan to chance, even after taking these DIY steps,” Maizes said. “Instead, find a fiduciary fee-for-advice-only financial advisor who does not sell products but offers advice because they are legally obligated to put your needs first.”

A fiduciary is a professional who is legally required to put your interests first, while a fee-only advisor has no incentive to sell you extra products to earn a commission.

In addition to assisting you with managing your investment portfolio, a financial planner may be able to advise you on estate planning and insurance needs, including preparations for long-term care and disability.

Prepare For an Emotional Journey

Leaving behind the working world and getting ready to move into retirement may bring up plenty of emotions, so give yourself time to experience all of them.

“Planning for retirement is about more than just ensuring you have enough money, but also that you are happy and emotionally ready to live the next phase of your life to its fullest,” Maizes said.

If you start to feel overwhelmed by the changes, remember the planning that you’ve done.

“Whenever you think of pausing rather than persevering, remember that planning can empower you with more choices and control over your decisions and your life,” Maizes added. “Instead, push through and continue celebrating your wins.”

The Bottom Line

The transition from working to retirement can be challenging, but good planning can make it easier. Begin by reviewing your budget and trimming the expenses.

Next, tally up your investments and the income sources you will have in retirement. If you need help, seek advice from a fiduciary financial planner who can help make your money last.