A dozen steps to a smooth transition to retirement

CookPaul-150-x-150Paul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

If there were one thing that sudden retirees wish they had, it would be time to think things through while still gainfully employed. They wish they had time to plan. The term “sudden retiree” refers to an ever-growing population of workers who found themselves retired due to unexpected events, such as the sale of a business, caregiving for a family member, downsizing, or sickness. Sudden retirees are typically forced to make decisions before they feel ready to do so.

If you are fortunate enough to exercise some control over when you will retire, you have an advantage over sudden retirees. You have the gift of time. You can prepare. You can think through all the angles and possibilities. You can ensure the smoothest possible transition by taking the twelve steps listed below.

  1. Visualize your exit. While retirement is a process, not a one-time event, it helps, to think about the event of exiting the workforce. How will your final days, weeks and months of work look? How will you spend your time? How can you pass the baton in a way you are most comfortable? Is it important to you to leave a legacy or footprint on your employer? If so, what actions will need to occur to ensure the legacy you desire?
  2. Visualize your entrance. Give thought to how you want to spend your days in retirement. What will your daily routine entail? Are there habits you want to form … or break? No longer confined to career-related personas, retirement provides an opportunity to reshape your identity and decide how you will present yourself to the world.
  3. Freeze frame. Take a snapshot of your current financial status by listing your assets, debts, interest rates on debts, and income.
  4. Retire high-interest debt. If possible, try to pay off any high-interest credit card debt, personal loans or auto loans before retirement. Typically, it is not wise to tap into your 401(k) or IRA to repay debt. If you are under the age of 59 ½, you could be subject to penalties and income tax liabilities, which could nullify any benefits you gain from the debt repayment.
  5. Revisit your retirement plan. Certain assumptions went into your retirement plan. When you know you are within 12 months of retirement, meet with your financial advisor to revisit those assumptions and strategies, and rebalance your portfolio with your newly established time horizon in mind.
  6. Make maximum contributions to your retirement accounts. If you have fallen short of maximum contributions, now is the time to step up your savings.
  7. Decide where and how you will live. Where you decide to live, including the location and the type of home, impacts nearly every dimension of your retirement experience. No longer anchored by the geographic constraints of your employment, retirement offers you the opportunity to re-think or re-commit to your residence. A study conducted by Bank of America Merrill Lynch shows 64 percent will move at least once during retirement, with 37 percent having already moved, and 27 percent anticipating doing so.[1] Factors to consider when making your decision include the cost of living in the area you’ve selected, weather, your home’s capacity to evolve into a more senior-friendly design, public transportation and services, accessibility to medical care, and proximity to family and friends.
  8. Lock down your retirement expenses. Some people believe they will see a significant decrease in post-retirement expenses; however, that may not be the case. In many instance, there is a trade-off in expenses. For example, you may not have the daily expenses of your commute to work, but taking long trips more often may nullify any savings. Most retirees’ expenses follow a U-shaped pattern. For the first couple of years, the expenses mimic pre-retirement expenses, then as the retiree settles in, expenses dip, only to rise as health care costs kick in.
  9. Formulate your income plan, by
    1. Deciding your election age for social security
    2. Considering other sources of income including fixed, immediate, and indexed annuity strategies, pensions, and even your house
    3. Creating a spend-down strategy so you know when and how to withdraw income from all potential sources
  10. Take preventative health measures. When it comes to determining retirement well-being, health is typically more important than wealth. Retirees in better health have the added peace of mind that comes from financial security. They tend to enjoy retirement more, feel fulfilled and are not as prone to negative emotions as their less healthy counterparts. [1] For most, health care costs top the retirement expenses charts. It makes good financial and medical sense to establish and adhere to healthy habits as a cost-containment measure and lifestyle booster.
  11. Strengthen your networks. Retirees who have strong social ties report higher levels of overall happiness in retirement. While still working, makes sure to build your social networks, so you have ways to connect with people who share your interests.
  12. Get serious about your emergency fund. It’s important to plan for how you will address emergencies, big and small, in retirement. According to a recent survey, 90 percent of Americans have endured at least one setback that harmed their retirement savings. Setbacks vary from caring for adult children, to college expenses stretching over six years instead of four. Others include loss of a job, assisted living expenses, and disappointing stock performance. On average, unexpected life events can cost retirees nearly $117,000.[2] An emergency fund can serve to prevent you from having to resort to retirement savings during hard financial times.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

[1]  https://mlaem.fs.ml.com/content/dam/ML/Articles/pdf/ml_Home-Retirement.pdf

[2] http://money.cnn.com/2013/05/15/retirement/retirement-savings/index.html

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