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Making the Transition to Retirement

Mike5
Mike Porter
Head of Sales and Support
WealthTrace

Key Points

  • There's more to retirement planning than just saving up for it.
  • Bucking conventional wisdom about where to invest in retirement might be appropriate.
  • Financial preparation is top priority, but psychological preparation might be a close second.

It can be pretty jarring, after years of saving, to move into spending mode. As the time approaches and you prepare to transition to retirement, you might constantly ask yourself: Am I really ready, financially and mentally, to do this? What about all those retirees in the 2008 crash that had to go back to work after their savings were cut in half? Will I have the resources to weather an event like that?

transition to retirement

Here is some food for thought for those preparing to transition to retirement soon.


Here is some food for thought for those preparing to transition to retirement soon.
 

Your Assets in Retirement

Conventional wisdom says to move to a more conservative asset mix in retirement. But how wise is that really? In an inflationary environment like we're seeing now, bonds could really get hit (and stocks tend to do reasonably well during inflationary periods). Inflation could be higher than the bond yield, which is not something anybody wants to see. You're effectively losing money when this happens. 

You can use the WealthTrace Planner to simulate scenarios such as this. Don’t transition to retirement without having a retirement plan in place. Sign up for a free trial of the WealthTrace Retirement Planner today to run your own what-if retirement scenarios. 

Depending on what kind of assets you have, a basic bucket strategy could be appropriate. That is, you might want to put some assets into bonds or cash so you're not having to sell stocks at the worst possible time. This isn't exactly creating a less risky allocation as much as it is a hedge against a bear market or recession. 

Of course, as always, where you put your money starts with your tolerance for risk and market volatility. Retirement doesn't change that. Could you weather a 40% downturn without losing sleep (or losing your mind)--especially if you no longer have a salary? 

The transition to retirement is a great time to think about passive retirement income. Setting yourself up to receive a passive (that is, not employment) income stream to cover at least part of the costs can help with making the mental leap. If you're fortunate enough to have a pension, that's one piece, and of course Social Security is another. 

With interest rates as low as they are (even as they're on the rise again), having a chunk of your invested assets in dividend stocks could end up being a really big source of income. It could also make going against conventional wisdom by staying largely invested in stocks when you're older more palatable. That's because, if you pick stocks that are unlikely to cut their dividends through thick and thin (like Dividend Aristocrats), you can better handle the periodic corrections or bear markets. You won't need to draw down as much on the principal or realize as much capital gains the investments will (hopefully, over time) accrue.
 

Health and Happiness

Life expectancy complicates matters. When you begin to transition to retirement, life expectancy is something you need to think about more. It's of course impossible to predict with total accuracy. But a combination of family health history and a dispassionate assessment of your current health and habits should be enough to give you a reasonable estimate of how long you'll live--and, when in doubt, round up the number to be conservative about it when assessing whether you're able to retire. 

You'll want to run your plan through a number of scenarios to prepare for the unexpected. For example, if one of the plan participants died unexpectedly early, would that disrupt the income stream for the survivor (like if a pension were to disappear)? If it did, do you have enough life insurance to cover it? 

Ahhhhh. OK, Now What Do I Do?

Dream big, but dream realistically too. Like so much else as you transition to retirement there will likely be a number of trade-offs in your decision-making process. For example, maybe you want to own a vacation property. What are you willing to do to make that happen? Would owning that property still be worth it to you if you had to work an additional five years to save up for the down payment? WealthTrace can help with the financial estimates, but you're on your own in deciding whether putting in the extra hours is something you want to do to reach certain goals. 

And what are you going to do with all that free time? That may sound like a silly concern. It's not as concrete a concern as running out of money, but it should be something you give serious thought to before turning in your key card. It's a particularly big issue for people for whom work is life--that is, people whose identities are tied up in their careers. 

A put-out-to-pasture feeling is not uncommon for retirees. They gave all they had at the office for so long, they don't know anything different. Suddenly, all that purpose they had before is gone. Leisure and travel will surely fill much of the free time for many, but that won't be satisfying enough for most. Are there community organizations you want to work with that you never had time for before? Is a part-time consulting gig in the cards, at least for a few years, to help with the mental transition? 

The End (?)

The point is to not simply think of retirement as the finish line, where you'll just kick your feet up and relax for the rest of your life. It's actually the starting line in some ways. 

Are you worried you might run out of money? Start your retirement plan to help alleviate your stress and anxiety.

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Mike5
Mike Porter
Head of Sales and Support
WealthTrace