Do any of the following describe you?
- You’ve worked at the same job with the same company for 25+ years. You aren’t ready to retire, but the job is getting old.
- Your work is draining, either because its mentally draining, physically draining or perhaps the commute is draining.
- You’re physically and mentally ready to retire, but the uncertainty of the future holds you back from completely calling it quits.
As a retirement planner, I can tell you that most of my clients focus on accumulation and retirement. They assume they will have to flip a switch from one to the other, on a birthday, a work anniversary, or near the end of a fiscal year. Identifying that perfectly right time to retire can be unnerving and feeling 100% confident in the decision is rare.
So what if instead of focusing on an ironclad retirement plan you instead worked on a “transition” plan? We forget that going from one big thing to the next often requires a period of transition, and that transition periods needs a plan too. If you find yourself on the fence about your retirement date, consider making a two to three year plan to “transition” to retirement and follow these key steps to get started:
- Build a buffer. Statistics show that spending too much of our retirement savings early in retirement can greatly reduce the likelihood this savings will be there for the long haul. Instead, build a cash reserve that you can spend from but that also acts as a moat protecting your long-term savings. Those in transition should increase their 3-6 month cushion to having at least a year’s worth of spending on hand.
- Work part-time. Many of my clients choose to “retire” from their career, only to pick up work elsewhere. This keeps them socially involved, continues to provide structure and activity, usually involves a passion or a hobby and ultimately keeps them from taking Social Security too early or spending too much from savings.
- Know your expenses. The few years in transition are the perfect time to become more fiscally aware of the day-to-day and month-to-month expenses you incur. What expenses will you have? Will there be new costs to consider? If you plan to downsize, is it possible to do this while still working full-time to cover unexpected expenses? This period is a great time to “test” your budget.
- Make sure you’re protected. Retirees tend to focus on healthcare coverage, and rightly so. But what about long-term care insurance? Most of my clients agree it would be good to protect their nest egg. The cost is what concerns them. Consider this in your transition plan. A couple more months of work may cover years worth of premiums. The same may be true of life insurance – part of developing a legacy plan. Consider these options as part of a transition plan.
- Finally, don’t overlook taxes. Most assume they will pay less in taxes in retirement and don’t bother planning for income taxes. But what about your deferred compensation plan that kicks in? How about the company stock that may be liquidated? Do you know how your pension and/or retirement savings will be taxed? Use this transition time to consider the taxable consequences of your income for the next couple years to ensure you aren’t paying more than your fair share.
Your full retirement date doesn’t need to be circled on a calendar. Start with a “transition plan” that allows you to build confidence in your long-term plan by testing your assumptions, considering new variables, and protecting what’s important to you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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.