Retirement is more than just numbers, it’s about the feeling and emotions that can come with significant change in routine, socialization and how you spend your time. So before we can get to the math behind savings, inflation, taxes and Social Security, consider the following:
- What is the most important part of your retirement?
- How will you spend your 168 hours per week now that working won’t consume 40, 50 60 of them?
- How do you see your spending habits changing over time in retirement?
- What do you believe will be your biggest challenges as you age?
These questions are there to help you define your retirement and your time horizon. Most people have an easy time defining what they will do on days 1-365 of retirement. The beginning of retirement, what we call the “honeymoon” phase is typically the easiest to define. But what about day 4,567? Or day 8,000? Instead of planning for retirement as a single stage, it may be beneficial to reframe the conversation to reflect different challenges that come with aging.
So, the first variable to consider in retirement is your “time horizon.” That is to say, when will you begin transitioning? When will you stop saving? Many retirees decide to first, scale back, act as consultants, volunteer their time or work only in a part-time capacity. Hence, they ease into retirement via a transition period between working full-time and being fully retired. Will this be you? How long do you anticipate this “honeymoon” phase of your retirement lasting? It’s important to know how much time you have to prepare in re-creating your own paycheck and where that paycheck will come from on day 1, and day 8,000.
There are financial implications to your time horizon. Part of these considerations should be assessing when you’ll have access to savings or other income resources:
- Will you retire before turning 59.5? You may not have access to your retirement savings without tax penalties prior to 59.5
- Social Security is not available until age 62, and even then, you receive a reduced payout for “early election.” Does it behoove you to wait? We help our clients assess how they can maximize their benefits.
- Are you carrying a mortgage? When will it be paid off? You might consider working through the end of this obligation as home debt is typically the largest monthly outflow for a pre-retiree.
- If you have a pension, are there rules on when it will begin? Are there good financial reasons to starting benefits earlier or later?
- Do you have stock options from a prior employer? Is there a vesting schedule you need to consider? What are the tax implications?
So think about your timeline. Effective preparation can reduce the stress of uncertainty about what income will be needed and where it will come from over time. And understand that retirement is not one chapter, but rather (hopefully) 8,000 days where goals and objectives and issues will change. In the end, having a vision for retirement helps us help you create a more realistic plan for your retirement.
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Securities offered through LPL Financial, Member FINRA and SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor. U.S. Financial Advisors and Haas Financial Group are separate entities from LPL Financial.