Many transitions in life can be difficult, like going to college, getting married, buying a house, and having kids. One transition that can be easily underestimated is retirement. We spend a lot of time planning for retirement from a financial perspective. We save money, both in our retirement accounts and in taxable accounts. We calculate our probability of having a successful retirement and not outliving our assets. Then the day finally comes, and most retirees are not prepared for what comes next.

It is easy to assume that once a person retires, they will forever be happy and life will be much simpler. They will finally be able to do all the things they have been dreaming about as they worked their 9-5 job and put money away for the future. Instead, what often happens is the individual retires and finally gets a chance to look around. They realize they don’t have any idea what to do next, plus they don’t know how to replicate their paycheck. Even if the individual works with a financial advisor, it’s likely their conversations focused on getting to retirement, not the logistics of paying for retirement. At retirement, the financial conversation needs to change.

As you transition to this next chapter in your life, consider answering these key questions:

  • How much can I spend?
  • Where will my monthly paycheck come from?
  • How can I minimize taxes?
  • How can I reduce anxiety about market fluctuations?

Let’s break down each question individually.

During the phase of life when you are working and accumulating wealth, it is very common to calculate and anticipate your retirement income amount. Financial planners typically use software and something called a Monte Carlo analysis to determine your probability of success. The income number in the projection determines if you have saved enough to retire at your desired age. However, that number is just an estimate. When you retire, you need to have a more exact dollar amount. Advisors often recommend tracking your expenses for a year or two, and then forecasting your anticipated expenses for the next twelve months. This will be part of your roadmap to financial success in retirement.

It’s one thing to work with a financial advisor to calculate an amount you could potentially spend, but it’s another to determine if this amount will fit your lifestyle. By writing down your expenses, you will be able to see when you might need more money or verify the amount you anticipate needing on a monthly basis. Your monthly and annual financial needs will be variable, so it is important to continue to have an emergency fund. Your emergency fund should be a taxable account with liquid assets – funds or investments you can access either immediately or within a few days.

Because of all our years in the workforce, most of us become very comfortable with receiving a consistent paycheck. What happens when this paycheck stops but your expenses don’t? You should have a solid understanding of where you will be gaining monthly income before you officially retire. Develop a strategy around the distribution of money from your various retirement accounts. If you don’t have a plan in place, you might pay more in taxes than you anticipated, or you might have fewer choices in the future because you have depleted the wrong retirement account. Your paycheck strategy needs to be for the current year and future years. Don’t look at it in a bubble because it will affect your taxes, liquidity, and legacy.

Even in retirement, you should have a solid tax strategy. Depending on when you retire, you might have the opportunity to make large Roth conversions, which could reduce your future tax liability and possibly the tax liability of future generations. You should also have a tax strategy for any large expenditures because if you withdraw from a tax-deferred account, you could be taxed at a much higher tax rate. However, you may be able to take smaller distributions over time and move them to a Roth IRA or a taxable account. This will build up those more tax-efficient accounts, giving you the ability to take a larger distribution without having a large tax impact. And it is never too early to start thinking about this because the tax brackets are always changing. Now might be a good opportunity to implement some of these tax saving strategies.

Retirement should be a time of relaxing, fulfilling your dreams, and spending time with those you love. Most individuals don’t want to worry about what the market is doing day-to-day and how it might impact their lifestyle. In retirement, it can become more important to have a portion of your assets in conservative investments. Depending on your situation, you may want to have one to three years of your anticipated spending in investments that have little to no market exposure. These funds are not going to have a very high return potential, but you likely won’t have to worry about significant losses when the market goes down. In market upturns, you can replenish the conservative account.

All of these strategies build on each other, so you’ll need an income distribution plan in place prior to your retirement date. The plan should include a thorough understanding of what your monthly and annual cash needs will be. Based on your current retirement portfolio, you should know exactly how much to take from each investment account monthly. This plan will be based on optimizing your expenses in the present and in future years. Depending on your anticipated cash needs for the next one to three years and your risk tolerance, you may want to limit market exposure for a portion of your investments.

This can be overwhelming and complicated. However, having the right team in place, both before and after your retirement, can be beneficial. Your team of professionals should be reviewing your risk profile, recommending the right mix of investments, helping you anticipate future needs, and making sure the correct tax strategies are in place for your individual situation.

And remember, your number one job in retirement is to live out your financial dreams. With some thoughtful planning with the correct strategies, you can help increase the likelihood to do just that.


This is intended for educational purposes only and should not be construed as personalized financial advice. Please consult your financial professional regarding your unique situation.

Author Anne M. Mank Director of Financial Planning

Anne co-hosted the weekly radio show, Money Sense, and is a Certified Integrative Holistic Coach.

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