Many of us mentally tune out when a commercial comes on, or we physically tune out and run for a snack or to the bathroom. The disconnect is certainly understandable, but what initially can be an intrusive promotion might actually contain a sustaining lifestyle message. One of the most telling commercials that I have seen in recent months focusses on a woman sitting on her porch looking somewhat woebegone, staring vacantly at the horizon and drumming her fingers on the railing. It is unclear whether she is bored, worried or both.The background music is very quiet and unassuming, but then the subtitle reveals that it is the woman’s ‘Second Day of Retirement’: The point is made: she is vaguely thinking “Now what!”The very meaning of retirement has changed in recent years, and even the timing has been unpredictable. I have a friend in the financial sector who thoroughly enjoys his professional practice and who has said ‘They’ll have to carry me out of here one day …’.Still, in order to avoid sitting on the porch like the star of our commercial, those who see retirement on the horizon can get on a glide path now and prepare for the big day. At the outset, this does not necessarily mean setting the actual date.Begin by calculating total income. This may seem like an overly simply suggestion, but a recent Charles Schwab study says that most pre-retirees consider managing retirement income more overwhelming than other financial developments such as losing a job or buying a home. The same study says that 72% of respondents worried about running out of money during retirement.Start with pension income. For those fortunate enough to have a defined benefit plan, that step is relatively easy since it provides for – literally – a defined payment. Those with a defined contribution plan can get an estimated payout well in advance.
- Add to that government plan payouts.
- Add to that any anticipated sources of part-time income such as consulting contracts.
- Add to these figures the payouts from structured retirement funds.
- Add to that any available payouts from investment accounts held outside of your pension plan.
- Ask your advisor to calculate how much you can withdraw each month, given the size of the account, life expectancy and your needs. If you do online trading, include an estimated income, but keep it conservative, given the market’s continued volatility and the prospect of a recession.Still in the income category, and while checking your investment accounts, discuss with your advisor whether some structural adjustments might become advisable as the retirement date nears.Ask yourself -– and your professional advisor -- these questions: Do you want to reduce the volatility and risk in your portfolio by adding some blue-chip financial stocks? Has it become advisable to increase the weighting of income-producing assets? How about increasing the proportion of cash and near-cash holdings to finance the big trip you’ve been planning to celebrate your retirement? Do you need to increase your cash holding if you are planning to set up a small business in retirement?And it may be appropriate to examine your relationship with your advisor. At this sensitive time, moving to a robo-advisor may not be the best approach in plotting your future.And don’t forget to allow for the tax liability of each of those income streams, whether deducted at source or paid later. The same Schwab study says that over half of the respondents found it difficult to manage the tax implications of withdrawing from different accounts.From there, double-check all of your liabilities. There are some dates that matter as much as your actual retirement date. Check your mortgage, line or lines of credit and renew these while you are still working. Do you need a larger limit on your credit card? Do you need an additional credit card if you are planning a small business in retirement? Arrange them while you are still working.Assess and reassess company benefits if you have them. What arrangements become necessary when you retire to ensure continued coverage? Include in your thinking the very real possibility of increased and unexpected health costs and decreased government assistance. Consider your benefits in the context of any anticipated lifestyle changes: for example, do you need to upgrade your travel and health insurance to cover extensive foreign travel?And make the most of any other company benefits: does your employer offer retirement planning or other courses?Finally, have a heart-to-heart chat with your doctor if you are considering an exotic trip to a faraway destination. Remember that adage: health is wealth.If you consider these measures, you will have something positive to plan and think about in retirement: perhaps marveling at a beautiful sunset from your spot on an exotic beach, rather than sitting on a porch staring at a vacant horizon.
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