Retirement Transition Planning: A Quick Guide

In this article: Retirement transition can be overwhelming. A Financial Advisor can tailor a plan for you considering your risk tolerance and retirement goals for a smooth transition.

Published Sept. 2, 2020

Reading Time: 4 minutes.

While planning for retirement, you’ve likely maximized your earnings, increased your savings, and invested them for growth. If you’re now looking to transition into retirement, you may want to start by dipping your toes into the retirement pool, instead of jumping right in. Bridging the gap between the growth phase and your retirement years is the most unique aspect of a retirement plan, as it varies largely on your health conditions, income, existing savings, and investments.

As with most changes in life, your retirement transition can be overwhelming. For many, this is the best time to consider working with a financial advisor, as any decision can have a significant impact on your comfort and wellbeing during retirement. An expert fiduciary advisor can tailor a plan for you considering your risk tolerance, retirement goals, and general life situation, such that you’re able to transition into retirement smoothly. 

How To: Define Your Retirement Age

Nowadays, you can retire when you want, as long as you can support yourself for the remainder of your life. The average retirement age in the United States is 65 for men and 63 for women. If you are counting on Social Security and Medicare, you should wait until you reach the required age to qualify. For Social Security, you must reach your full retirement age (FRA), which depends on your birth year. If you start claiming benefits prior to your full retirement age, these benefits will be reduced. Similarly, you are eligible to join Medicare at 65. Consider all of these aspects when deciding when exactly you’ll fully transition into retirement.

Transition Planning: Rethink Your Investment Strategy and Risk

You have saved for retirement with a thorough financial plan. Now what? You want to be conservative with your risk but stay invested in the market. This will ensure your portfolio is preserved, regardless of how the market fluctuates. After all, you want to safeguard your retirement as much as you can. You want to prepare not only for now and your retiring transition, but for the long term, too. 

There is no one size fits all. How you choose to manage your investment strategy depends on a lot of factors, such as: 

It’s a big decision. A financial planner can help you figure out where your savings are better invested at this stage. They can also help you reassess your risk tolerance and make your withdrawals systematic so your income remains steady. 

Rethinking your strategy also means reviewing your asset allocation. It makes sense to dial down the risk of your portfolio as you shift to the asset preservation phase from accumulation. It is also commonly recommended to set aside two years’ worth of expenses to help you cover your basics if you enter retirement during a down market. Regardless of what is happening at the moment, you won’t have to worry about income. 

Transitioning into Retirement Allows You to Prepare for the Long Haul

Rising life expectancy is increasingly translating into longer retirement. You might want to focus on creating a mentally stimulating lifestyle in your retiring transition. Think about where you are going to live and what you are going to do. Once you have goals set, it is easier to create a strategy focused on preserving your assets while making those dreams come true. The good news is that, for most people, taking the plunge is the hardest part!

Being financially prepared is the most decisive factor when people choose to retire. It means paying off your debt and mortgage. Having a plan and feeling prepared. A key ingredient in this plan should be setting a budget that you can modify as you go along. Plan for one time expenses like travel or big purchases. Think about expected healthcare costs. In 2019, a couple could expect to spend over $280,000 in medical expenses throughout retirement! 

Make the Best Decisions for You

Retirement transition planning puts you at the forefront of your goals. Think about the different choices available to you. Where do you want to retire or when do you want to start Social Security? Maybe you want to work a little longer to earn more and delay tapping into your savings. What about going back to school, traveling, starting your business, or dedicating yourself to philanthropy?  Transition into retirement by staying active! 

Whatever you dream and decide on, you get to make the choice. A recent retirement study shows that two-thirds of Americans would sell belongings or real estate they no longer need. Deciding where you retire is a big decision. You might be familiar with an area close to family. Or might want to move into a smaller home to reduce costs. You might even consider extended travels or retiring abroad. It all depends on what you want and what you can afford. 

Transition: Make It a Gradual Change

Transitioning allows you to make retirement a gradual change. Working gives you routine and relationships. A sense of community. How will you make sure you still have these things once you retire? What will give you a sense of connection, engagement, and purpose? Many people reaching retirement age are choosing to stay in the workforce. According to the US Bureau of Labor Statistics, the civilian labor force that is 65 and older is expected to increase from 7,727 people in 2012 to 13,476 in 2022. 

The traditional abrupt end of work is now phasing into a gradual transition into retirement. People are switching to jobs they can do as retirees, working part-time, or consulting before they quit working entirely. Research shows that 75%of retirees are willing to work longer to increase savings. Likewise, 67% are open to learning new skills as they approach and enter retirement. Maybe take a sabbatical instead of retiring right away. Try out a retirement destination before committing. Whatever your choice, make sure you can stick to a budget you have set before you jump in.

Consolidate Your Accounts

Having multiple financial accounts increases the fees you are paying and can be difficult to keep track of. Throughout the transition phase, you are looking to simplify your life. Consolidating your savings and banking accounts will make it easier to manage your money. Keep in mind the investment options available to you as well as any account fees. You are probably going to be rolling over your funds to a single account, so make sure you do it right.

Required minimum distributions (RMDs) are also something to consider. RMDs are amounts established by U.S. tax law that require you to withdraw annually from employer-sponsored retirement plans and traditional IRAs. Essentially, they are your guide to how much to withdraw, but they can be tricky. A financial advisor can help ensure you withdraw strategically. 

What About Your Social Network?

Humans need social connections. Life after retirement still needs interactions. When retirement transition planning, think about that. Relationships are likely to change, but it is up to you to change with them. Will you be able to maintain your friendships? Do you have any dependents? How will relocating affect them? Is someone else contributing to your retirement finances?

Loneliness is often associated with retirement. Plan your time and your money to be social. It doesn’t have to mean thousands of dollars spent on a cruise. You can join your local walking/jogging club, most of which are free. Be on the lookout for a tennis league, bridge club, church group, or educational class. Find a new hobby or something that interests you. New connections will come with new activities. Staying active will also help your health (and wallet) long term.

Providing Financial Support 

If you are one of the 79% of parents of adult children who provide them some type of financial support, factor that in when planning your retirement finances. This is support for living expenses from groceries to weddings and buying a house for the first time. If you have children, it might also be worth writing or updating your will, trusts, and medical directives. Just because you retire, doesn’t mean you stop being a parent. Likewise, parenting doesn’t end when your kids are off to college or get married. 

Transition to Retirement According To Your Unique Situation

Preserving your assets for retirement is much more than just figuring out the money. You have to think about every aspect of your lifestyle. This is where retirement transition planning comes in. Like any transition in life, it takes a lot of work. But it is worth it. Prioritize what is important to you and make that work. Stay active, engaged, and vibrant. Keep experiencing personal growth by engaging in stimulating activities.

In this series, we’ll dive deeper into each of these phases and how they relate to your unique retirement planning journey. To identify which phase suits you best at this point in your life, as well as to learn actionable frameworks and strategies, download your free copy of our latest cost-free guide, The Road to Retirement.  

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

Ready to Get Started?

Real financial planning should pay off today, not in 10 years' time.