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Am I Ready to Retire?

You are either ready to retire or getting close (within 5 years) to the desired date. After years of preparing for retirement, you ask yourself… “Am I ready to retire?” The decision to retire comes with many emotions. You balance the excitement of “retiring” with the fear of relinquishing the security of a consistent paycheck. The shift from accumulation to withdrawal takes you into unknown territory. A review of your retirement plan during this phase will help ease the transition.

Common themes/questions as you get Ready to Retire

During your accumulation years, your action steps were relatively consistent. You were in a relatively high tax bracket. You funded expenses from employment income. Your employer covered a portion of your health care, life insurance and disability insurance. As you transition into retirement, you realize you will have more time… and new expenses. Understanding how your plan will change will guide you through the transition into the third phase… Enjoying Retirement.

Ready to Retire plans include discussions and reviews surrounding:

  • How much can I spend in retirement? If you updated your plan during the Getting Started phase, you have a rough idea of what you hoped to spend during retirement. Now that you are closer, we should update. Reviewing your plan today provides time to adjust before making the final decision. Or you may find you can retire sooner than you thought.
  • When should I claim Social Security or pension? Social Security benefits and pension payments are typically the “floor” when considering expenses. They provide guaranteed income that you can’t outlive. Reviewing how various claiming strategies affect your plan’s projected success helps you shift from what is often an emotional decision to a logical, informed decision.
  • Should I change my investment allocation? You have likely heard you should be more conservative as you enter retirement. Depending on the specifics of your situation, this may or may not be true. We consider the fact you are no longer adding to accounts. We also recognize you will be withdrawing money from your account. We believe your portfolio allocation should consider all the aspects of your plan rather than some generic formula.
  • From which account should I take withdrawals? The answer to this question will be determined by the types of accounts available and the tax implications (current and future) of withdrawals. This decision should include other choices made in this phase. As an example, the choice of when to claim Social Security benefits may impact this decision. Reviewing your plan as a comprehensive unit rather than individual pieces helps create a solution based on the long run.
  • Will I be in a lower tax bracket? If you retire early (before collecting Social Security or taking Required Minimum Distributions), you may find yourself in a lower tax bracket than you are projected to be in the future. When this is the case, we consider realizing income in the years where taxes are relatively low to avoid taxes when relatively high. Roth conversions, Social Security delay and other strategies will be reviewed in this phase.
  • What should I do with insurance? You might have purchased an insurance policy or annuity (an insurance product) during your accumulation years. We review whether you should maintain the policies and consider options for how to use them in conjunction with the other components of your plan.

Why you should review your plan before you are ready to retire

Like the previous phase, time is a factor. The sooner you review, the more options you’ll have. If you wait until you’ve retired, your only options might be to cut spending or return to the workforce based on need. Neither choice is typically desired.

This is typically the phase with the greatest opportunities. You will make more financial decisions in this phase than the other two. Your tax bracket may change from year to year. Your plan provides a clear road map as you enter this transition. You will have a plan for how to invest, where to withdraw, considerations surrounding taxes, and a plan for addressing what could go wrong. Everyone has a financial plan. By default, your plan is the combination of what you earn, save, spend, invest and protect.

Interview us!

If you question whether this is a good investment for you, we recommend interviewing us and other financial planners. Like most financial planners, we do not charge a fee for this meeting. Take time to understand the differences and decide what is best for you.