Maybe you’ll retire next year, although you did say that last year and the year before. Eventually, you start to wonder: Will you ever be ready to move on? Baby Boomers are a generation that have mostly done a great job saving for retirement. While many people, including Boomers, took a hit during the Great Recession, for the most part they’ve saved more than their parents. Even with an ample nest egg, however, many Baby Boomers feel hesitant about retiring. The transition can be a difficult and uncertain time for many, but as Boomers age into their 60s and 70s, most will have to face the transition to retirement sooner rather than later.
“It takes a plan to retire, and in an ideal world, retirement should include a home that is paid off and a cash flow projection that, in the best of all scenarios, does not force one to reduce one’s lifestyle,” says Robert E. Maloney, financial advisor at Squam Lakes Financial Advisors in Holderness, N.H.
How to Retire Confidently
- Live on your retirement income before you retire. Before you leave the rat race, take a year to live on the amount you’ll have in retirement. This will give you a chance to see if that figure is realistic. If you don’t know how much you need to live on, consult a financial advisor who can give you a dollar amount. “Average estimates are that living expenses decline about 20% in retirement,” says compliance analyst John Schneider of DebtFreeGuys. “To prepare, cut back on your living expenses for a year or two before retirement to make that transition smoother.” (For more, see: Analyzing the Best Retirement Plans and Investment Options.)
- Keep working. This might sound counterintuitive, but working for a few more years can do wonders for building confidence in your retirement plan. Even if you leave your full-time job, consider working part-time or consulting in your former industry. It will help keep you busy, make you feel fulfilled and increase your income. “Transitioning into retirement is as much about a mind-set shift as a money shift. Working part-time can help you adjust to the absence of achievement and contribution desires,” says Kimberly J. Howard, CFP®, CRPC®, ADPA, owner/advisor, KJH Financial Services in Newton, Mass.
- Have a goal. For many people, retirement is a vague idea. Once the time arrives, they don’t know what to do. “Don't just retire from something; spend time figuring out what you're retiring to,” says certified financial planner (CFP) Roger Whitney of WWK Wealth Advisors in Fort Worth, Texas. He advises taking two years to figure out your passion, what your retirement goals are and how to achieve them. (For more, see: Retirement Planning in a Changing World.)
- Budget for healthcare. Many Baby Boomers are still relying on employer-based health coverage in the years leading up to retirement. Saving specifically for healthcare can alleviate the anxiety of leaving those plans. Those retiring before 65 need to figure out what to do until their Medicare kicks in, and buying a plan can come with sticker shock for the older generation. Before leaving your job, do the math on premiums, out-of-pocket expenses, prescriptions and co-pays to see if you can afford your new health insurance. Remember, even Medicare won’t cover all your expenses. “Most retirees will need some sort of supplemental insurance to help cover all of their necessary medical needs, so having a budget for potential healthcare expenses is necessary,” says Mark Hebner, founder and president, Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.” (For more, see: Planning for Healthcare Costs in Retirement.)
- Pay off debt. Before retirement, aim to pay off as much debt as possible in order to start with a clean financial slate. Whether you have a mortgage or are paying off student loans for your children, retiring debt free will make it easier to live off a fixed income. “If your investments are yielding about 6% to 9%, but you have credit card debt with 18% to 23% interest, you need to make sure debt is paid down first and foremost,” says Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla.
- Take baby steps. You don’t have to retire all at once. You can switch to part-time hours for a year before retirement, or gradually delegate responsibilities if you’re a business owner or entrepreneur. For married couples, one spouse can continue to work for a year while the other settles into retirement. This would allow you to foresee any problems before your cash flow dries up. (For more, see: 5 Crucial Tips for Your Retirement Income Planning.)
- Think about why you’re hesitant. For many, the fear of retirement has nothing to do with financial fears or lack of preparation. Like a child starting a new school or recent graduate starting a new job, retirement is a leap into unknown territory. Consider what’s really holding you back, and think about how many times you’ve conquered similar challenges. Chances are you have overcome and adapted to bigger changes than retirement in the past. (For more, see: Common Risks That Can Ruin Your Retirement.)
The Bottom Line
The workplace can be a comfort zone, especially for those who’ve worked at the same company or in the same career for most of their lives. As hard as it can be to leave that space, if all your retirement savings are there, ready to be used, it may be time to start enjoying everything you've worked so hard to build. The big job is to figure out where you want to go next.
Fortunately, there’s no need to jump off the high dive right away. There are plenty of ways to make the transition to retirement slow, methodical and painless. If what you fear is a big change, you can take every aspect of retirement in smaller chunks. Take your time, examine your options and ease your way into a fulfilling retirement. What matters is starting the process. (For more, see: Retired or Near-Retirement? Check Out These Multi-Asset Income ETFs.)