I Want to Retire Next Year. What Should I Be Doing?

We hear this all the time: "hey I want to retire next year, what should I be doing to know I'm on track?"

Here’s a quick crash course of the main topics we like to see discussed or thought about before a client retires:

Get Serious About What Retirement May Actually Look Like

What are you going to do to fill the free time you used to fill with work?

Finish that list of home projects? 

Get a part-time job or volunteer to fill some time? 

Play golf a few days a week? 

Relax for a year and then find new hobbies? 

Travel? 

You don’t need a final answer, but you want to start thinking about what your days look like. We’ve had many retirees go back to work or take more time than expected to adjust because they weren't finding fulfillment in retirement. Knowing what you're retiring to can help avoid this.

Where Does Your Retirement Paycheck Come From?

• Will you live off investment income or portfolio withdrawals?

• Rental property income?

• Pension or Annuity? Start date chosen?

• Are you going to be claiming Social Security?

These are all questions we at Alpha Financial Management help our clients answer.

Develop a Spending Estimate

How can you tell if the money is enough if you don’t know how much you need? We’re just looking for a baseline here because not every year is the same, and some expenses will drop off in retirement while others will pick up.

One thing to consider is the type of spending - is it locked-in or flexible?

• Mortgage or car - locked in

• Vacation or dining - discretionary

Look at the last 3-6 months. Or even longer If you have it. How much do you spend on necessities or things you want to keep doing in retirement?

Any major known one-time expenses still coming?

• New houses or renovations

• Kids colleges

• Kids weddings

• Known health expenses

• Dream cars

• Bucket list trips

• Gifts to heirs

All of our clients have flexibility built into their spending - life isn’t lived on a spreadsheet. We help them navigate the higher spending early years to make sure they enjoy the fruits of their labor without putting them in jeopardy of running out of money in their later years.

What is Your Healthcare Strategy?

Healthcare is one of, if not the biggest, expense in retirement so we definitely want to make sure we have a plan in place. 

There’s a few options here that are age-dependent:

• Straight to medicare

  • What supplement or advantage policy will you need?

• Retiree coverage from previous employer

• Tricare or Federal Employer Health Benefits (FEHB)

• COBRA

• Affordable Care Act/ACA/Obamacare

Building a plan for healthcare, and a budget for the costs, can be a make or break variable in retirement.

Figuring Out How to Pay the Tax Man

We need income in retirement, and with that comes taxes. How much tax will we have to pay, and how will we do it?

We help clients figure out the optimal tax strategy on all of their assets and income sources. For example: living off dividends and capital gains from the portfolio in the early years for a better tax result, then claiming Social Security or a pension kicking in causing a tax bracket jump.

Most retirees pay tax withholding on their Social Security, pensions or IRA distributions. If that isn’t enough many of them do estimated tax payments – more spending we need to consider.

Portfolio Adjustments

If you’re one year out we need to make sure we’re close to our desired bond weight, or we have a plan to get there. Quarterly purchases? Future 401k deposits into bonds? If we don't have our full war chest built, are we okay accepting a little more risk heading into retirement?

We like to have 4 years worth of portfolio withdrawals in bonds as our ‘war chest’. Of this, we want at-least two years in high quality, shorter term bonds or money market funds, that way our clients wouldn’t have to sell stocks during a two year market dip.

Insurance: Should You Carry Life Insurance Into Retirement? What About Long-Term Care?

• Are there any major expenses (typically mortgage or kids colleges are the most common ones) that we still want covered should you die?

• Should we convert the group policies from work into individual policies?

• Do we need to keep the policies we currently have, or look for new ones?

• One year out is typically when we like to get this plan and policies solidified. This gives us time to shop around or do medical underwriting.

Everyone's retirement is unique and the decisions can be overwhelming. We help clients develop plans for some, or all, of these areas so they can go out and enjoy their retirement without worry.

Alpha Financial Management is a comprehensive financial planning firm serving clients as fee-only fiduciary advisors in Savannah, Georgia, Atlanta, Georgia, and Bluffton, South Carolina.