After years of dreaming and saving, the date of your retirement finally arrives. What are your plans? Will you travel? Will you spend more time with friends and family? Or do you just want to start sleeping in every morning and let each new day take its course? As you consider your next steps, you may want to keep in mind a few things that will ease your transition — at least from the perspective of your retirement finances. For example:
- Make a spend-down plan — Your retirement income will probably come from various sources — such as retirement accounts, IRAs personal savings and investment accounts, part-time income, Social Security benefits, and pension benefits. The mix is different for everyone. To help minimize your tax burden in retirement, you may want to draw different amounts from different sources at various times. This is sometimes called a “spend-down plan.”
- Reexamine your expenses — Your spending won’t come to a stop in retirement, but it will probably change. The average retired household cuts its spending by 1.5% to 1.6% per year throughout retirement. But keep in mind that while some expenses may decline, others may increase.1 For example, one study has found that 65-year-old couples will spend an average of $315,000 on healthcare and medical expenses in retirement.2
- Keep managing risk — Is the mix of risk and return potential in your portfolio appropriate for your age, risk tolerance, and overall financial picture? As a rule of thumb, people shift to more conservative investments as they get older to protect the assets they’ll rely on for retirement income. Another factor to consider is how long you’ll depend on your nest egg for income. After all, your retirement may last decades. Talk to your local retirement plan counselor about whether your post-retirement portfolio is in line with your risk tolerance, income goals, and retirement timeline.
Retirement planning doesn’t end with retirement. You’ll still have to manage the shift from accumulating retirement savings to using those savings for retirement income. With a little planning and regular adjustments, you can make the most of the nest egg you worked so hard to build during your working years.
Questions on how you can make a smooth transition to your retirement years? Schedule some time with Chip Richardson, our Henrico County Retirement Plan Advisor.