For most of us, retirement is a monumental change. “Do I have enough saved? What will I do all day?” you might ask yourself. Indeed, retirement is one of the biggest transitions in life most of us will ever undergo, and there is a lot to think about.
Even Tom Brady, one of the most decorated athletes of all time, recently decided to un-retire. And Brady did it not because of money, but because he came to the realization that “my place is still on the field and not in the stands.”
While Brady may be unique, this illustrates the complex web of things we all have to think about before finally deciding to call it quits. Of course, for the typical working-class person, money is a big factor — but it isn’t the only factor. With the help of experts, we’ll walk through six things you should think about before deciding to retire.
Retirement Is a Major Lifestyle Change
Before we dive into money concerns, let’s get one thing out of the way: retirement isn’t just a financial change — it’s also a lifestyle change. Even if your job went fully remote as a result of the pandemic, retirement life doesn’t have the built-in structure that working life has.
“All future retirees need to think about how they will create purpose in their post-work life,” says Sam Brownell, CFA and founder of Stratus Wealth Advisors.
“Most of our clients do not want to go to the country club every day,” Brownell continued. He says that many of his firm’s clients use their lifetime of experience to become a part-time consultant. “This allows the retiree to continue to receive a stream of cash flow while also controlling who they work with and how many hours they work.”
Expenses Don’t Always Decrease
A common recommendation to those who are nearing retirement is to plan to have 70% to 80% of your income while employed after you retire. The rationale is that your expenses will decrease since you won’t have to commute to the office every day. Plus, you may not eat out so often without those daily lunch breaks.
But Brownell says that often isn’t the case. “Expenses typically do not decrease at all or potentially even go up during the more active years of retirement,” he says. “Therefore, it is critical to run scenarios assuming that your expenses will stay at least at the level they were the last 3-5 years prior to retirement.”
Brownell went on to add that you won’t be able to decide how much money to save if you don’t know how much money you need on a monthly basis.
When Will You Start Claiming Social Security?
You may not know exactly when you will start claiming your Social Security benefits, especially if you haven’t yet determined when you will officially stop working. Perhaps you want to retire a few years early because you have substantial savings or your health isn’t what it used to be. In that case, you could start Social Security payments as early as 62. However, starting Social Security early has its downsides.
One of the biggest downsides is that your payments will be reduced. Conversely, payments are increased if you delay them. Eric Phillips, CFA and Sr. Director at Human Interest, calls this a 401(k) bridge.
“This means using 401(k) funds as a source of retirement income that helps you delay electing Social Security,” Phillips says. As Phillips notes, you can increase your Social Security payments by as much as 8% annually (depending on your birth year) if you delay payments until age 70.
Retirement Is Increasingly Gradual These Days
For many years, there was this idea that you would clock out one last time and ride off into the sunset, never to be seen at the office (or any office) again. “Today, retirement doesn’t happen in a single day — it now happens over a longer period of time,” Phillips says. A Human Interest survey showed just 29% of small business employees say the definition of retirement is “leaving the workforce permanently and never working again.”
This was touched upon in the first section about retirement being a lifestyle change. These days, working arrangements can be more fluid, and people don’t always go from 60 to zero all at once. “In fact, our survey found that SMB employees are planning, on average, to retire at age 69 — much higher than the actual average retirement age of 62,” Phillips says.
Plan for Healthcare Costs
Healthcare costs are always one of the biggest expenses for retirees. As such, you should plan for what could make up the biggest increase in your post-retirement expenses. Katherine Tierney, CFA and senior retirement strategist at Edward Jones, says you should understand Medicare costs and coverage as well as enrollment timing.
“If you’re leaving your job before age 65, determine how you’ll cover healthcare until eligible for Medicare,” Tierney says. “And, don’t forget about long-term care, which is generally not covered by Medicare or traditional medical insurance.”
What Does Your Financial Advisor Think?
Nearly every expert who provided input on this topic recommended working with a financial advisor as you prepare for retirement. It makes sense, as a financial advisor can help you with a wide range of questions and concerns related to managing your retirement.
For instance, a financial advisor can help you determine whether you have enough saved to retire. If you do have enough, they can help you decide how much you can comfortably withdraw from your investments each year.
They can also answer a variety of other questions, such as minimizing the tax impacts that come with selling investments. It’s almost always worth it to meet with a financial advisor, even for just a session or two, before retiring. Doing so will ensure you can retire safely and have the peace of mind you need after a long and prosperous career.
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