Are You Retiring Within the Next 5 Years?

What should you focus on as the transition approaches? | May 15, 2015

How much monthly income will you need? Look at your monthly expenses and add them up. (Consider also the trips, adventures and pursuits you have in mind in the near term.) You may end up living on less; that may be acceptable, as your monthly expenses may decline. If your retirement income strategy was conceived a few years ago, revisit it to see if it needs adjusting. As a test, you can even try living on your projected monthly income for 2-3 months prior to retiring.

Should you downsize or relocate? Moving to another state may lessen your tax burden. Moving into a smaller home may reduce your monthly expenses. In a perfect world, you would retire without any mortgage debt. If you will still be paying off your home loan in retirement, realize that your monthly income might be lower as you do so. You may want to investigate a refinance, but consider that the cost of refinancing can offset the potential savings down the line.

How conservative should your portfolio be? Even if your retirement savings are substantial, growth investing gives your portfolio the potential to keep pace with or keep ahead of rising consumer prices. Mere gradual inflation has the capability to erode your purchasing power over time. As an example, at 3% inflation what costs $10,000 today will cost more than $24,000 in 2045.1

In planning for retirement, the top priority is to build savings; within retirement, the top priority is generating consistent, sufficient income. With that in mind, portfolio assets may be adjusted or reallocated with respect to time: it may be wise to have some risk-averse investments that can provide income in the next few years as well as growth investments geared to income or savings objectives on the long-term horizon.

How will you live? There are people who wrap up their careers without much idea of what their day-to-day life will be like once they retire. Some picture an endless Saturday. Others wonder if they will lose their sense of purpose (and self) away from work. Remember that retirement is a beginning. Ask yourself what you would like to begin doing. Think about how to structure your days to do it, and how your day-to-day life could change for the better with the gift of more free time.

Many retirees find that their expenses “out of the gate” are larger than they anticipated – more travel and leisure means more money spent. Even so, no one wants to enter retirement pinching pennies. If you want to live it up a little yet are worried about drawing down your retirement savings too fast, consider trimming transportation costs (car and gasoline expenses; maybe you could even live car-free), landscaping costs, or other monthly costs that amount to discretionary spending.

How will you take care of yourself? What kind of health insurance do you have right now? If your employer sponsors a group health plan, you may as well get the most out of it (in terms of doctor, dentist and optometrist visits) before you leave.

If you retire prior to age 65, Medicare will not be there for you. Check to see if your group health plan will extend certain benefits to you when you retire; it may or may not. If you can stay enrolled in it, great; if not, you may have to find new coverage at presumably higher premiums.

Even if you retire at 65 or later, Medicare is no panacea. Your out-of-pocket health care expenses could still be substantial with Medicare in place. Long term care is another consideration – if you think you (or your spouse) will need it, should it be funded through existing assets or some form of LTC insurance?

Give your retirement strategy a second look before the transition approaches. Review it in the company of your RPA financial advisor. An adjustment or two before retirement may be necessary due to life or financial events.


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