How To Prepare For A Smooth Retirement Transition

Posted on March 10th, 2022
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Thinking about a cozy retirement on the horizon? The final decade or two of your career shouldn’t feel like a race to the finish; in light of the modern quality of life that many of us are fortunate enough to enjoy, retirement should instead feel like a new chapter that you can look forward to beginning. 

Considering that, as of last year, the average age to retire hovers at around 66 years of age, lots of working professionals have ample time to not only plan their retirement but also make it one of the happiest stages of their lives. To that end, let’s take a look at how you can smoothly transition into retirement by planning for it accordingly.

Jump-start your savings

If you’re like many people who are on the cusp of retirement, you may be able to expedite the rate at which you pay off your mortgage or facilitate your children’s foray into independent living by jump-starting your savings. It’s highly recommended that you begin saving at least one-fifth of your income to bolster your monthly savings and position yourself for a smooth transition into retirement.

It’s likely that, as a working professional who is nearing the end of their career, you’re experiencing a larger cash flow than when you were in your 30s or 40s. When you choose to accelerate your monthly savings at this point in your life, you take advantage of your relatively high income compared to the income you made during your younger years by making larger contributions to your 401(k) or other retirement plan and subsequently deferring a greater amount of taxes. When it comes time to retire, you can then focus on paying your taxes as you begin to withdraw your retirement account distributions.

As your cash flow peaks during your 50s or 60s, you may be tempted to contribute your maximum qualified amount toward your 401(k) or other employer-offered retirement plans. Before you settle on the amount you’d like to contribute annually, it can be wise to create a cash flow projection to better anticipate the cushion of personal funds you’ll have at the end of each year after making your annual contributions. Cash flow projections can also make it easier to figure out what your financial status will look like post-retirement when you begin taking your contributions and paying taxes each time you take those contributions.

Revisit your investment strategy

As you move closer toward your retirement, it’s a good idea to take another look at the way you’re allocating your financial assets. In general, soon-to-be-retirees should aim for an investment strategy that favors a conservative approach while still accounting for inflation. 

For example, a large minority of your investment portfolio may consist of stocks that can provide a bulwark against inflation; an investment strategy that all but ignores stocks can easily fall prey to inflation’s effect on the spending power of a retirement savings portfolio. At the same time, a healthy amount of diversification is crucial to people in their 50s and 60s who want to avoid being too conservative with their investment strategy. To avoid becoming too conservative with your retirement savings, you may want to consider diversifying your investment portfolio with assets such as government-issued bonds as well as money market funds and other cash equivalents.

At the end of the day, no two investment strategies or portfolios of financial assets will be identical. The one thing that every person working toward retirement should have in common, though, is a strategy to mitigate the effects of inflation on their spending power. An investment strategy that’s too conservative is simply asking for a portfolio of retirement savings to be slowly eaten away by rising inflation. At the same time, an investment strategy that’s too aggressive can leave you open to significant financial loss that can negatively impact your ability to retire in a timely fashion.

Before you consider your investment strategy settled, don’t forget to apprise yourself of ways that cybercriminals attempt to target and steal funds from investment portfolios, including those maintained by people interested in retiring. Among people who will soon retire, one of the most common indicators that someone is targeting your funds is the instigation of tax-related identity theft. If someone has fraudulently filed taxes under your name, that should be a clear indicator that you may be the victim of tax identity fraud. If you get a notification from the IRS before you file your taxes, immediately contact your bank and let them know about the situation.

Decide how you’ll enjoy your time

We’d be remiss if we didn’t explore the more holistic side to retirement at least a little bit: you must find what you enjoy doing so that you can spend your retirement contently and under as little stress as possible.

Are there hobbies you’ve always wanted to pick up but never had the time for? Vacations you’ve wanted to take but have put off for years? Perhaps you’ve simply wanted to spend more time with your family – whatever you feel you’d enjoy doing most, it’s important to make time during retirement for the things that bring you contentment and are unrelated to the stresses that come with projecting your income and savings. After all, it doesn’t make too much sense to meticulously plan a financially comfortable and healthy retirement only to squander away your newfound personal time.

 Conclusion

 Retirement, for many, may feel like a tedious struggle. As you now know, though, it’s more than possible to prepare for a smooth retirement transition and enjoy your retirement once it comes. If you’re in your 50s or 60s, begin to jump-start your savings by electing to contribute as much as possible to your employer-offered retirement plan. 

Contribute as much as you can now so that you can defer tax payments that you can later pay off once you’re retired and withdrawing funds from your retirement plan. While you’re at it, be sure to revisit your investment strategy to ensure it’s conservative enough to stand strong against inflation while maintaining its spending power. Last but not least is the importance of knowing what you’ll do once you’re retired.

Find the things you most enjoy doing and don’t be afraid to dive headfirst into those things once you’re retired and able to enjoy more time to yourself.

Kiara Taylor

Kiara Taylor

Kiara Taylor is a financial writer and Research Analyst. She is an expert at risk-based modeling having worked in the finance vertical for the past twenty years. She has a Master's Degree in Finance from Ohio State and has worked at Fifth Third Bank, J.P. Morgan and Citi in emerging markets and equity research.

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