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Financial Planning During Retirement

Congratulations! You’re retired! You have spent your whole working life to diligently save and invest in order to reach this long-awaited moment. But whether you plan to spend your days golfing, scuba diving or pursing a second career as an artist, you are still not done with financial planning! Tasks such as budgeting, saving money and portfolio management will require scrupulous attention. Increased life expectancy, greater physical mobility and vigor, better preventive health care measures and advances in medical science while clearly advantageous also mean that for many retirees, the money they have spent decades accumulating simply has to go a lot further. Mistakes made during this crucial junction can quickly unravel all their plans and hopes for what should be the most enjoyable time of their lives.

Having a relatively worry-free retirement hinges on your individual health, expectations, temperament and just how well you have financially and personally prepared for this part of your life. Take realistic stock of your personal and financial situation and available options. It is necessary to delineate between reality and fantasy; what is workable and what is not, given your personal needs and financial resources. Downsizing may be a prerequisite for some individuals. Relocation may not be a feasible option for everyone. Some retirees who live in an area which offers convenient mass public transportation may want to forgo the expense of owning and maintaining a car but that lifestyle decision may not appeal to others. Making gradual changes rather than a hasty, ill-formulated plan is the more prudent course of action.

The first year of retirement is generally the most difficult as it is a pivotal transition in terms of lifestyle and corresponding shift in priorities and interests. Having a solid plan and budget in place can ease some of the stress and make the transition somewhat smoother. Determine your yearly income. Follow-up with a budget that outlines only your minimum monthly living expenses. Include expenses for out-of-pocket health care. There should also be a fixed allocation which goes towards monthly savings. Review the total. Create a special financial worksheet detailing variable expenses for hobbies, vacations or other recreational pursuits. Evaluate that amount in relation to your fixed expenses and monthly income. Depending on your financial situation, it may be necessary to scale back some of your recreational pursuits.

Quick Highlights:

1. Delay receiving Social Security until full retirement age or age 70, if possible.

2. Evaluate income from other sources (e.g., mutual funds, preferred stocks or rental property).

3. Determine the minimum monthly or yearly income that can be generated from existing annuity investments (if applicable).

4. You will need to consult with a knowledgeable retirement planning specialist or financial planner to determine exactly how much you can withdraw annually from your investment portfolio without depleting your financial resources during your lifetime. The general guideline is to withdraw no more than 3-4% annually from investments. For the first few years, play it safe and withdraw only the absolute minimum amount you need to meet your fixed living expenses. The money already invested can continue to grow. Retirees will also need to become thoroughly familiar with the guidelines regarding required minimum distributions from their tax-deferred retirement plans and how they factor in their income stream.

5. Be certain that you understand the tax implications of IRA withdrawals.

6. Save as much as possible. Do not make any large purchases or splurge on luxuries during the first few years of retirement.

7. Avoid incurring debt such as taking out loans. Retirees, like everyone else, can also become hooked on shopping with credit cards.

8. Work part-time to generate extra income.

9. Continue to contribute to your cash reserves. Having sizeable cash savings can provide peace of mind.

10. Re-evaluate your insurance needs with special emphasis on your age, lifestyle and other financial assets. Some early retirees may need to purchase their own health insurance. It is also essential to consider how life insurance fits in with your estate plan.

11. Network with senior organizations and associations. Find out about special senior services that can help you save money (e.g., utilities and prescription drugs).

12. Be aware of the importance of portfolio reallocation to accommodate changing market conditions in conjunction with your personal risk tolerance and needs.

When it comes to managing our finances during retirement, aside from the essential tasks of budgeting expenses, saving money, investing and portfolio management, other prime concerns are long-term care insurance, gifting and estate planning. Prudent financial planning can make our retirement years infinitely more pleasant and easier.


For informational purposes and not intended as advice.


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