Making the Transition to Retirement: Will You Be Ready to Retire?
- Larry Alderson, CFP®, CTFA®
Think about how long you have been saving for retirement. Using savings accounts, brokerage accounts, 401(k)’s, IRA’s and anything in between, you’ve formed a strategy around building a retirement savings plan to provide you with income after your last paycheck. Now that you’re thinking about retiring in the next 5-10 years, it’s time to formulate a new strategy. This strategy will position your savings for optimal income throughout your retirement years.
Where to begin furthering your retirement plan? First, consult with a retirement income planning specialist before making any changes to your existing plans or portfolios. When you meet with them, make sure to understand their perspective on four important factors.
1. Retirement Risk: Sequence of Returns
When planning to live off of the income and capital of your investments, the sequence of investment returns could impact your portfolio’s value over time. The timing of withdrawals made on certain investments early on could mean lower returns than you may have expected, which is critical in determining how long your assets actually last.
To protect yourself from sequence risk before you retire, having a disciplined investment process in place is essential. Considerations include supplementing the retirement portfolio with investments products that provide guaranteed income (i.e. immediate annuity, deferred income annuity, etc.), or building a laddered bond portfolio. The best thing you can do is to understand that all choices involve a tradeoff between risk and return.
2. Retirement Market Risk Management
Market risk, also called “systematic risk,” is the ever-present risk of investment losses based on performance of the financial markets. Market risk can never be eliminated since it is influenced by uncontrollable stimuli, like recessions, natural disasters, terrorist attacks, interest rate changes or political turmoil.
To hedge against market risk, your retirement portfolio should be a diversified mixture of investments that reflect your personal risk tolerance. Build a portfolio of investments throughout multiple industries to diversify your portfolio. Most importantly, your diversification strategy should align with your long-term goals for retirement.
3. Retirement Income Considerations
Making the transition from earning a regular paycheck to sustainability in retirement presents a crossroads in your financial life. Financial planning and budgeting for this transition should be approached thoughtfully and strategically. It’s important to develop a plan that considers your short-term income and financial needs, but also projects ahead to cover you for the unknowns of the future.
Let your Retirement Income Planning Specialist guide you through your current spending habits at a weekly or bi-weekly basis. Evaluate your short-term, intermediate and long-term income considerations to prepare to transition to your retirement income. Use C&N’s Retirement Savings Duration calculator to see how long your current retirement savings will last.
4. Managing Income Sources During Retirement
Mapping out a plan for managing multiple income sources will also ensure you’re optimizing your income potential during retirement. Your strategy will need to cover income generated from your social security benefits, pensions, employer-sponsored 401(k)s or individual retirement accounts, investments in stocks or bonds, and more. In conjunction with managing those income streams, there are differing tax implications associated with each that will be important to thoroughly understand.
It is common to become overwhelmed as you approach this phase of life. But it doesn’t have to feel that way. If you start planning 5-10 years before you retire, you can put measures in place that will set you up to reach your retirement goals. In addition, partnering with a trusted Retirement Income Planning Specialist will also provide you with a reliable resource for knowledge, guidance and support. Discover our Retirement Nest Egg calculator or connect with our retirement specialists to further your financial future.
Some products are not FDIC insured or guaranteed, not a deposit or other obligation of the bank, not guaranteed by the bank and are subject to investment risk, including the possible loss of the principal amount invested and are not insured by any other federal government agency.
Larry is a local industry veteran with extensive knowledge and expertise in all facets of financial planning. With over 20 years in the financial services industry, he has been with C&N since 1999 and is currently a Regional Wealth Management Executive, a role in which his personal goal of helping people is fulfilled day in, day out. He believes that “superior service” means getting to know our clients, understanding what is truly important to them, and helping them put a plan together to accomplish those very personal desires.
Larry is an Honors Graduate of Cannon Financial Institute, Trust Schools 1, 2, & 3. He has also completed the College for Financial Planning Professional Education and the American Bankers Association Private Wealth Management School. In addition to holding the designation of both Certified Trust and Financial Advisor (CTFA) and Certified Financial Planner practitioner (CFP), he also holds Security Licenses Series 7 – General Securities Representative and Series 63 – Uniform Securities Agent, as well as Life, Accident, Health and Property Casualty Insurance Licenses. Larry served as a member of the Pennsylvania Bankers Association Advisory Committee on Financial Planning from 2002 through 2004.
Larry is known to be an exceptionally active member of his community. He was appointed and/or elected to Pike Township Board of Supervisors from 1992 through 2011. He is also an active member and Sunday School teacher of the Rome Presbyterian Church, Past President of Athens Rotary, a member of LeRay Lodge #471 F. & A.M., a member of the Financial Planning Association, and has been a member of the Finance and Investment Committee for the Community Foundation for the Twin Tiers since its inception in 2002.