2630 W. Bradley Place, Suite C Chicago, IL 60618
E-mail: pwa@keatinginc.com
Phone: 773-975-4020

Beth Kraszewski named as Top Best-in-State Woman Wealth Advisor by Forbes

Preparing for retirement in the next five years.

What to do (and not do) as you glide into retirement

For many people, once they reach their 60’s, a little countdown clock starts ticking away in their head, marking each passing day until retirement. And for some lucky ones, that countdown starts even earlier. No matter how much you enjoy working, it seems like everyone gets to the point where they’re ready to retire. 

And you should. You’ve earned it! 

But beyond getting excited as you get closer to that final day, here are a few things that you should do to make sure you’re ready for retirement, both financially and mentally.

1. Work with your financial advisor

Hopefully, you’ve had conversations with a financial advisor when you were setting up your retirement savings account. And if you’re like most of my clients, you may have had only one or two conversations a year with this person (though I’m always pushing for as much time with my client as possible).

But now that the finish line is in sight, you should make sure that you and your financial advisor are on the same page and working towards a shared goal. This is more than one meeting or phone call; it should be a series of conversations. Your financial advisor is trained and has experience helping people in your situation transition into the retirement lifestyle they want. 

What I sometimes encounter is clients who think that now that they’re retiring, they’re done with saving and may not have as much use for the financial advice we can provide. Then they’re surprised to learn that there is so much that we can help them with, including budgeting on a fixed income and adjusting their investments to keep working even after they’re not contributing as much to them anymore.

Most importantly, a financial advisor can help you see how one decision can affect your entire retirement outlook. For example, financial advisors know tax codes and other guidelines, and can see when certain decisions will trigger a higher tax bill. You will likely change into a different tax bracket once you stop taking a salary, and we can help you with that. 

Another big question that retirees have is when to start taking your social security retirement benefits. You can start taking these benefits as early as 62, which is before most people retire, but the longer you wait, the more your benefit will increase. We can help you calculate what the ramifications would be for taking your social security earlier or later, and decide which path is right for you.* 

2. Start paying closer attention to your expenses

It’s common when you’re earning a steady paycheck to not pay close attention to all of your monthly expenses. When money’s coming in, it has a tendency of offsetting the money going out in our minds. But that’s going to change when you’re retired, and you want to be prepared with a monthly budget that’s sustainable. 

Fortunately, these days with online banking and financial tracking apps, it can be easier than ever to understand what you’re spending your money on. Some of them will generate charts and graphs so you can see where your biggest expenses are going. You may be surprised to find you’re spending more on things like restaurants and entertainment than you thought.

But as you get closer to retirement, you should start asking yourself where you can reduce expenses. That’s something a financial advisor can help you with, as well. We can also look at areas where your expenses may go up, like healthcare, and make a plan for that, as well.

3. Prepare your portfolio for retirement as well

You’re going to have to prepare more than just yourself for your new retirement lifestyle. Your financial portfolio will also have to get used to a new stage of its life, as it goes from being a savings tool to a payment source. 

There’s a term that you’ll hear a lot when you’re nearing retirement: glide. I’ve always liked this way to describe the smooth and graceful transition into retirement that we work hard to create for our clients. It’s a good word for both your personal transition, as well as for the transition in your financial situation that we can help you with. 

A glide path is the investment strategy we use to adjust your mix of investments as you near and move into retirement. One notable aspect of a glide path is changing the risk tolerance inherent in your investments to reflect where you are in your career. 

When you’re younger, we advocate that it’s beneficial to include more risk in your investments. These types of investments also have higher growth potential, and you have more time for those risks to pay off before you start to draw on that money.

But as you get closer to retirement, you’d want to reduce those risks as you want to make sure the money you’ve invested all of these years is available now that you’ll be needing it. Investments like bonds typically carry less risk and may produce more income.

You should be reassessing your investment portfolio throughout your career, but it’s much more important the closer you get to retirement. A financial planner like Purposeful Wealth Advisors can help you set up your glide path and protect your investments so that when you’re ready to start drawing from them, they’re ready for you.**

4. Understanding your obstacles

As you’re approaching your retirement day, it’s natural to start worrying about if you have saved enough. The most common concern we hear from our clients is if they’ll have enough money for what they’ll need. That’s why we urge clients to understand the challenges you might face in retirement so that you can be prepared for them and we can work together to avoid them.

One of the biggest obstacles you’ll face are healthcare expenses. As you get older, your expenses are highly likely to keep going up. And that’s even more true if you find that you or your spouse needs a long-term care solution. That’s why we recommend our clients set aside a portion of their retirement budget to healthcare costs, even if they are in relatively good health.

While you’re retired, your retirement accounts can still grow in value and offer you more savings to draw from for your retirement budget. But as you surely know, markets are just as likely to go down as they are to go up, so your retirement account may not grow as much as you’d like or planned for in retirement. That’s why we work so hard to get the investment mix right during the glide path period, to help protect your accounts from any market downturns.

And just as markets can change, the tax code can change as well. In fact, changing government policies and changes by federal agencies, like the Federal Reserve, can affect your savings as well.

5. Think beyond just sleeping in

You may think I’m talking out of both sides of my mouth after asking you to take a hard look at your expenses, but I also encourage you not to think of expenses as just for the things you need. Leave space in your budget for your interests and activities. You’ve worked your whole life to get to retirement, and what’s the point of doing that if you’re not enjoying yourself?

So if some of your expenses are wrapped up in hobbies, or date nights, or trips around the world, that’s great!

At Purposeful Wealth Advisors, we call this “thinking beyond just sleeping in.” That is, think about retirement as something more than just taking a break and relaxing after all your years of hard work. 

Instead, we encourage our clients to think about what retirement means to them, what they want this time in their lives to be and what they want to do. Because then we can help them make that a reality. 

Some popular plans that clients share with us about their retirement include 

  • Moving, either to their favorite vacation area, someplace warm or closer to kids and grandkids
  • Traveling
  • Taking up new hobbies or focus more on ones you already have
  • Volunteering
  • Learning something new 

As you’re preparing to retire, now is a perfect time for some self-reflection. Ask yourself what you want to learn about, what makes you feel useful, and what activities bring you joy. 

Keep in mind that for many people, their career is also a major part of their identity. It can be hard to leave it behind, and it helps if you have plans in place to fill up that time and that part of yourself. And then you can make plans to have fun in your free time.

See? It’s not all about cutting down expenses.

6. What NOT to do

Now that you know what you should be focusing on as you near retirement, here are a few things that you shouldn’t do. It’s natural to consider these approaches, especially as someone who may be looking to save money knowing on a fixed income. But in our experience, they almost always do more harm than good.

  1. Don’t DIY

You may be tempted to make all your financial decisions yourself, but doing so could put you at risk. Your financial advisor knows how all of your income, expenses, and tax burdens are interconnected, and can help you make decisions that don’t have any unintended consequences.

  1. Don’t go on a spending spree

It’s natural to want to celebrate once you’ve retired, and when you look at the lump sum of retirement savings you’ve collected, you may think that you have plenty to splurge on yourself. Resist that urge! Keep an eye on your monthly retirement budget that your financial advisor helped you with and make sure that all purchases fit, including celebratory purchases.

  1. Don’t make decisions in a vacuum

When you work with a financial advisor, we will always keep every conversation centered around your retirement goals. Not just your financial goals, but about what you want to get out of this time in your life. That way every decision will keep you on track towards those goals. 

Making decisions in a vacuum is when you make financial decisions without these goals in mind. We can help you see how all of your assets and resources are interconnected and make sure you’re not making a decision to save $50 over here only to get charged $100 over there because you incur a penalty. 

  1. Don’t cancel life insurance

If you still have debt or other obligations that you must pay for in retirement, life insurance can help if something were to happen to you. Also, many people plan on using life insurance as a form of inheritance to their descendants.  

Retirement is a time of life that you should enjoy! That’s why we recommend working with a financial advisor during this time. We can help set you up so that you don’t have to spend your retirement worrying about your finances. 

* Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

** Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation