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Four Tips for Transitioning into Retirement Successfully

The secret to making the switch lies in planning ahead
| By: Randall E. White, CFP®, RICP®, CRPC®, CMFC®

Four Tips for Transitioning into Retirement Successfully
Wednesday, 07 July 2021

Our natural inclination is to view retirement as a happy and stress-free phase of life – and it absolutely can be. However, when you’re transitioning into retirement it can feel disorienting and nerve-wracking. Making the shift from the working and saving phase of your life to the life of a retiree tends to be a rollercoaster of emotions, and this life pivot can be taxing for even those who are the most prepared.

Why Transitioning into Retirement Can Be Challenging

The novelty of not having to go to work every day can wear off quickly and leave some people feeling a bit empty or bored once they retire. This is especially true for people whose personal identity was strongly tied to their work. If you’re feeling like this, anxiety and over-thinking can begin to flourish – oftentimes about your finances. When you’re no longer receiving a regular paycheck, yet facing fresh financial demands in retirement, it’s common to be tempted to pull your money from your investments and lock everything up in the safety of a savings account. However, you’re not going to need all of your money on the first day you retire, and attempting to eliminate all of the fluctuations in your portfolio can ultimately end up creating new risks that you may not be expecting.

Fortunately, there are things that you can be doing now to help navigate your future transition into retirement with the confidence and security that you deserve. Below are four tips to help you pivot into retirement successfully.

Tip #1: Plan Early and Often

Perhaps the best way to be sure you’re prepared for your transition into retired life is to have a concrete, well-thought-out plan for the transition. You should begin thinking about and establishing this plan five to ten years in advance of when you expect to retire. Planning early allows you to have plenty of time to readjust, catch up, or move your retirement date if your current savings and investment strategy is inadequate to support the retirement that you want. Early planning also affords you the ability to start investing in various types of accounts that will ultimately provide you more flexibility in retirement, such as taxable, tax-free, and tax-deferred accounts.

In addition, planning early provides you the time you need to sit down and really think about what you want your retirement to look like. When and where will you retire? How will you spend your free time? What do want to experience or achieve in retirement? Do you want your home to be paid off by then, or will you be juggling a mortgage or rent? Engaging with these questions seriously takes time, and the answers will provide you the details you need to shape a long-term spending and investment plan for retirement. Having a clear picture of what you want life to look like can also help ease the shock of retired life once you finally hit this milestone.


SEE ALSO: Eight Steps to Master Saving for Retirement with Your Spouse


These questions are meaningful, and the planning that goes with them is complex. This means your retirement planning must not be a one-time exercise. You should be revisiting your answers to the above questions and your investment and savings strategies at least once per year so that you can address anything that may have changed as you get closer to leaving the workforce.

Tip #2: Stress Test Your Investments

The financial markets can be volatile and are impossible to predict, which is why people tend to lean toward the conservative side with their investments as they approach retirement. If the markets should take a turn for the worse, returning to work could be difficult. This makes many people uneasy about the idea of staying open to greater fluctuation in the value of their portfolio. However, a better way to navigate this dilemma is by stress testing your portfolio.

To do a stress test, you first have to determine the gap between your reliable sources of retirement income, such as pensions or Social Security, versus the amount you plan to spend in retirement. The discrepancy between the two values is where your portfolio comes in. Look at your investments and measure how much of a hit you could take from a bear market and still be provided with the monthly income you’ll need. Additionally, look at how your portfolio would serve you in a conservative low-risk, low-return portfolio – and don’t forget to factor in inflation. While you’re analyzing these factors, you may want to also consider what might happen to your investment plans should you live longer than you’re expecting.

Taken together, these tests should give you more confidence in the fact that you’re positioned correctly to keep your portfolio growing in the ways that you need it to regardless of market conditions, but also ensure that you’re not taking more risk than necessary. Being informed with this information can help to ease any investment anxiety you may have and encourage you to stick with your long-term investment plan.

Tip #3: Make Sure Your Withdrawals are Tax-Efficient

By the time you find yourself transitioning into retirement, you’ll likely have your money in several different types of accounts, such as IRAs or 401(k)s, Roth IRAs, and taxable accounts. If you have multiple types of accounts and you need to begin taking distributions, be sure to think about which account the money is coming from and how it may impact your income tax rate.

If you’re going to be spending more money, whether to buy a vacation home or fund a child’s wedding, you may want to withdrawal from your Roth IRA and other accounts that provide tax-free withdrawals. If you’re at a time in your life where you don’t have any large expenses or aren’t spending as much, it may be smarter to withdrawal from accounts that are taxed more heavily, as you’re still likely to be in a lower tax bracket.


SEE ALSO: Four Steps to Feel More Confident About Your Retirement Plan


Tip #4: Learn to Be Flexible

The only thing we can be sure of in life is that we can’t be certain of what the future holds. Life has a funny way of throwing curveballs when we least expect them. Should something unexpected arise, don’t abandon your financial plans altogether. Rather, assess what might need tweaking and make the necessary adjustments. If the unexpected event is something big, such as getting a divorce, being diagnosed with a serious illness, or a significant drop in the markets, sit down with your financial advisor to talk about the best strategy for moving forward toward your goals.

Transitioning into Retirement is About Being Proactive - Not Reactive

After spending so much of your life working and saving, you have the right to a stress-free and rewarding retirement experience. It may seem tempting to make big moves and it can be easy to fall victim to your emotions and let your anxieties determine what actions you take. However, doing so will usually cause more harm than good. Following the four tips above will help you transition into retirement successfully.

If you would like to speak with a financial advisor to help you build a retirement plan to suit your needs, or you would like a second look at your existing strategy, please contact us today. At TriCapital, we take pride in helping our clients build wealth for life.


Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.

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