Are You Ready To Retire?

Are You Ready to Retire?: How to Navigate the Lead-Up to Retirement

 

Bob and Katie Carlson* couldn’t believe the good fortune they’d had in the stock market, and at our first meeting in my office, they talked rather sheepishly about a dream they could now actually see coming to pass: a comfortable retirement.  Certainly, both had done a good job of saving through their employers’ 401(k) plans over the years, and they lived modest lifestyles.  Now both 60, their thoughts turned increasingly to exciting trips they wanted to take and spending more time with their young grandchildren, especially before Katie’s chronic health condition got any worse in the years to come.

Like Bob and Katie, many Americans in their 50’s and early 60’s find they’re able to realistically think about retirement.  College expenses for the kids are mostly done.  Friends start taking the leap to their own retirements. Even when a career is satisfying, the daily grind any job requires starts to be (maybe) optional, while other life goals like spending time traveling or with family seem more necessary. Being “fed up with work” is not going to sustain a fulfilling retirement, but it’s not the worst excuse for starting the retirement process!

 

The Importance of Knowing When to Retire

 

In Bob and Katie’s case, many of the financial and emotional pieces of retirement started to line up right about the time when it became possible to quit working.  But for many other people, retirement is an amorphous blob of dreams and anxieties with not much more concrete thought to it than, “I’d like to stop working by the time I’m 65.”

To be successful at retirement, you need to purposefully choose your retirement path. Just as you chose a career for your working years, and you likely chose and planned for a spouse and children, retirement is that next phase of life that requires you to decide what you want. What is it that retirement means to you? You can avoid the question, but facing it head on is the only surefire way to get what you want.

 

The Time for Retirement Planning

 

Just as smart-aleck advisors will tell you the time to begin saving for retirement is when you get that first paycheck as a 16-year-old, the time for planning your retirement was surely many years ago, too bad for you!  Being more realistic, you probably need 3-5 years to get your retirement ducks in a row.  Bob and Katie found they needed time to prepare emotionally for the end of their working years, a facet of retirement that many ignore in the rush to get their financial affairs in order. Other financial tasks that take some time include paying down debt and lining up healthcare coverage, and you may need time to phase out of your role at work, leaving it to colleagues to carry on (or hire your replacement).

When is a less-than-ideal time to plan for retirement? When you are considering an early-retirement offer on the table (good!) or your job is about to be eliminated.  Although you can accelerate all these decisions, doing so under stress, with fewer options due to the compressed timeframe, is not the best way to start retirement.  Plan ahead and leave yourself enough time!

 

Determining Your Financial and Emotional Readiness

Both financial and emotional factors are key to a successful retirement plan.

 

Gauge your emotional readiness by reviewing these factors:

• “Meet” with your spouse/partner.  This must be one of your first activities when you consider retirement! Open communication is critical about what each of you want to achieve in retirement. Further, you’re going to be spending A LOT more time with this person than you did during your working years. Are you ready for that?
• Consider your goals for retirement. Will you be focusing on new/existing hobbies, volunteering, exercising and traveling, or spending more time with family and friends? What exactly does that look like.  As career-focused workers, we take for granted that much of our workday is guided by big goals and objectives. It can be hard to switch gears to retirement, and having some concrete goals to organize life can be crucial for making the leap.
• How’s your network of friends? If your work friends were a big part of your life, you’ll have to find new ways to remain in touch with them, now that you won’t see them during the day. Are there other retirees you can start being more involved with, prior to retiring? Ask them what worked well for them as they made the transition to retirement.
• Would working part-time be better for you emotionally? Many people find a great deal of purpose and identity in work, and “losing” that in retirement can be tough. Leaving aside financial concerns, would staying in the workforce be appealing to you? Is it possible to do with your current job, or do you need to explore other types of work (the “encore career”)?

 

Don’t rush or pooh-pooh the need to think through your emotional readiness for retirement. For more detailed planning, consider the resources available through the American Psychological Association at: http://www.apa.org/pi/aging/lifespan.pdf

 

On the financial side, you’ll need to consider the following factors:

• Do you have your expenses under control? Retirement is all about matching your expenses to a (generally) fixed income. If you’ve never lived according to a strict budget, that’s okay! Review your current take-home pay from work—how much is left over at the end of the month? Don’t assume that your current expenses will go down. Healthcare and travel/entertainment expenses often go up compared to pre-retirement spending, and at different times. If you need to dive into your current expenses, I like this calculator: https://www.blackrock.com/investing/literature/investor-education/retirement-expense-worksheet-va-us.pdf
• Do you have outstanding debt (cars, mortgage, credit cards)? If possible, it’s important to pay down those debts before your income is fixed in retirement. Do you have an emergency fund? Many new retirees find they have unexpected bills (or delayed payments from pensions or Social Security) they need to cover with cash.
• Guess at a Social Security start date if you’re less than 62. The earliest you can claim Social Security is 62, but it almost always is to your advantage to wait to later years, since you’ll be paid more monthly for the delay. It’s okay to have a plan to take Social Security later, but make a firmer decision as you get into retirement.  The key thing is to figure out where this lands in your income plan for retirement.
• Consider the high cost of healthcare. You won’t be eligible for Medicare until age 65, and even then, there are many Medigap and supplemental plans to consider, depending on your health situation.  This is complex but crucial stuff, since healthcare will be one of your most unpredictable and inflationary expenses. If your current employer offers Retiree Healthcare, you owe it to yourself to look into that plan.

 

Did you notice I didn’t even mention investments and how to turn those into income? That’s a critical piece of the puzzle, but most advisors (and many good websites) can help you figure out the mechanics of investments. Far better that you figure out the weighty answers to the above financial items.

Getting yourself ready for retirement takes some time and effort, but the reward is a successful transition from the world of work to the joys of new endeavors in retirement. As Bob and Katie found, the chance to travel and spend more time with grandkids was well worth the time we put in upfront to chart the retirement course.

* I’ve changed their names, though they are real clients of mine.

 

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