Retirement Transition: It’s Not What You Think
Retirement isn’t a single point in time. It’s a process as you transition from one life stage to another. From planning years in advance, to saving as much as you can before your last workday, to living the dream—your idea of retirement will likely shift over time.
Making the Change
For some, retirement isn’t always the end of employment. Full-time jobs could turn into part-time work, higher-paying careers can be replaced by more meaningful or charitable work, and hobbies can become productive side gigs.
While many people consider retirement to be a primarily financial change, it’s more than that. Your lifestyle—even your identity—will go through a transition as you adjust to new circumstances.
Preparing for the financial aspect of retirement is more than a numbers game—it takes planning. Here are some considerations as you approach your final working years.
Moving from one season in life to another can be an abrupt change for some. Here are some aspects to think about as you determine what you want your future to look like.
As you make your way through life, your budget, the mix of your investments and where you get your income will evolve with your changing circumstances.
The Budget Transition
During your working years, a budget is key to ensuring you’ll have enough money for day-to-day expenses and for the future. That means looking at your current expenses and setting enough savings aside to invest in retirement.
Many experts recommend saving a greater percentage of your salary as you approach retirement. Not sure how much to save? Get savings checkpoints to gauge your progress: 3 Smart Retirement Tips for Every Age.
The Portfolio Transition
You’ll want your retirement portfolio to be conservative enough to buffer against market declines but still provide enough growth potential to see you through a long retirement. What could that look like? The transition from early saving to accumulation to retirement is shown in the hypothetical chart below.
Risk-Appropriate Considerations Now and For the Future
Hypothetical Allocations as Retirement Nears
The Income Transition
Retirement may seem uncertain when you go from getting a regular paycheck to relying on your savings and being exposed to the fluctuations of the investment markets. But it doesn’t have to be that way.
Instead of hoping you’ll have enough, plan for it. Use income from your final working years to help pad your nest egg, and then work out various income scenarios:
Consider your current and future budget and possible spending ranges.
Calculate various withdrawal rates to ensure you won’t be taking out too much (or too little and sacrificing your lifestyle plans).
Factor in potential income from other sources (inheritance, part-time work, rental income, etc.).
Consider your portfolio’s asset allocation and potential swings in the value of your investments.
Your finances often overshadow the “softer” side in the runup to retirement. Many pre-retirees assume they will just “figure out” the personal transition when the time comes, but the emotional, social and physical considerations are just as important as the financial ones.
The Identity Transition
How will it feel when you’re no longer a full-time doctor, accountant, insurance agent or [fill in the blank]? Our careers are often entwined with our identities, and it’s important to consider how you’ll react to the void left when this chapter of life is over. Pursuing part-time or “encore” employment or enjoying a new role as a more-involved grandparent can help ease the emotional transition.
Additionally, retirement may also change personal dynamics at home. Spouses don’t usually retire at the same time. Suddenly having both spouses at home (or one working spouse and one retired) may result in competing priorities, shifts in household duties and getting accustomed to one another’s daily presence and habits.
Life will be different. Communication and preparation—ideally before your last day at work—will help you overcome the friction when navigating a new environment.
The Social Transition
Work often provides an automatic social interaction: You go to work and see the same people in your office or for after-hours get-togethers.
After you retire, you’ll have to decide how you might maintain those relationships and whether you’ll seek out new relationships through clubs, hobbies, volunteer/charity work. Your time spent with family might also increase or decrease, depending on your plans.
Social circles are vital to our health and happiness, particularly in retirement. Family and friends can:
Offer new experiences and someone to spend time with
Support you during difficult or stressful times
Provide us with (or strengthen) a sense of belonging
The Physical Transition
Retirement may give you the freedom to travel, spend more time with friends and try out new activities. As you think about these opportunities, also consider your current health and fitness and how that might change over time.
Do you need to reconsider your housing situation? Many retirees consider downsizing, moving to retirement communities, changing climates, splitting time between two homes, moving closer to family—either for convenience or planning for future needs.
Your assessment can also help you plan for staying physically active during retirement. Consider your current fitness and decide whether you’ll start a new routine or adjust your existing exercise regimen.
How Will You Know When You’re Ready to Retire?
What Will Your Transition Look Like?
Take the questionnaire below to walk through your income, spending and lifestyle decisions as you make your way from the working world to retired life. For couples, have each person answer independently and then compare your answers.
Questionnaire: Planning for the Transition
Your Finances (Income, Spending, Savings, Investments)
Is your job or income changing as you approach retirement? Will you remain fully employed, cut back hours, transition to a new job, etc.?
How much have you been saving as you approach retirement? Can you increase that amount?
How may your spending needs change in retirement? What will be less? What will be more?
Have you calculated premiums and out-of-pocket costs for medical care?
Do you intend to dip into that savings/certain investments right away in retirement?
What annual percentage withdrawal plan are you considering for when you’re in retirement?
Diversification does not assure a profit nor does it protect against loss of principal.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.