Retiring This Year? 3 Money Moves To Make Right Now

By: Stacey Nickens

Congratulations! You have worked hard your entire life, and you are ready to rest and enjoy the fruits of your labor. As a financial advisor, I have loved assisting so many clients in moving into and through retirement. As you get closer to this milestone, it’s important to take a few considerations into account. So if retirement is on your horizon, check off some of the to-do’s below to make sure that you’re ready.

1. Consider how you will spend your time

Retirement can be wonderful: no more commutes, no more annoying meetings with your boss, and no more work that you don’t want to do! Even still, moving into the unstructured days of retirement can be mentally taxing. Most of us have structured our entire life around our work schedules, and when we no longer have those schedules, we may feel daunted by the free hours and days in front of us. If you don’t make an appropriate plan for how to spend this extra time, you may find your mental health declining. You may also find yourself spending your savings more quickly than you anticipated in an effort to fill up that time.

Golden Eagle painting by Toni Vilardi-Tavalaro

With that said, I encourage you to think through some retirement routines. Plan out a morning routine so you don’t end up staying in bed all day. Commit to some mindful movement each day, whether that means stretching, going for a walk, or doing a workout class. Invest in a new hobby. The Golden Eagle painting was created by one of my recently-retired clients, Toni Vilardi-Tavalaro. She is spending her retirement honing her long-practiced painting skills. Hobbies could not only bring joy and routine to your days, they could also earn you some extra income. You could sell stories that you write or pottery that you make.

2. Assess your savings

Perhaps you look at your savings account, and find that you have put aside $1 million for retirement. $1 million sounds like a whole lot of money! However, your nest egg may not be as expansive as it first seems. For one, those savings may need to fund your lifestyle for multiple decades. When you spread out $1 million over such a length of time, you may find that your savings won’t last as long as you think.

Consider the 4% withdrawal rule. This rule states that you should withdraw no more than 4% of your savings each year. Minimizing your withdrawal rate ensures that your investment accounts can grow enough to offset these withdrawals. If you’ve saved $1 million, withdrawing 4% each year yields an annual income of $40,000. Is $40,000 plus your Social Security benefit enough to fund your lifestyle? I encourage you to do your own calculations with your savings. Take 4% of your total savings. Add your Social Security benefit into the mix, and consider if you can live off of that income. When making those calculations, I also urge you to be honest about your spending. While many people think they will spend less in retirement, I rarely find that to be the case. With that in mind, could your savings account fund your current spending habits? If not, you may want to delay retirement for a bit longer and build up your nest egg.

I would also take inflation into consideration. With inflation on the rise, more people may become susceptible to a phenomenon known as the money illusion. The money illusion shows that most people think in nominal dollars — the flat amount of money you are earning or saving — rather than in real dollars – the purchasing power of your money. The “Rule of 72” could help you understand your purchasing power. With this rule, you take 72 and divide it by the annual inflation rate. The result will show you the number of years before your purchasing power is cut in half. If inflation rises to 3%, your purchasing power would be cut in half in 24 years. What does this mean? Pretend you go out to eat tonight and order two meals for $50. In two decades, today’s $50 would only buy you one meal.

3. Know your Social Security benefit

As I mentioned above, you need to know your Social Security benefit to understand your retirement income. To do so, create a My Social Security account. You may also receive mailings that detail your estimated benefit.

If you want a larger benefit, you could delay claiming Social Security benefit. Your benefit will reach its highest value when you turn 70.

Need help?

Elm3’s Financial Planning team is happy to get you ready for retirement. We have many years of experience and advanced analysis tools that can help you assess if your savings will last you through retirement and when you should claim Social Security. Reach out to us today to begin the financial planning process.