Life After Work: Planning Your Retirement with Confidence

If 2024 is the year you plan on retiring, congratulations! Think of all the years and hard work you’ve put in to reach this point. It’s a major milestone in your life and the life of your spouse. 

While this event marks a significant transition from your working years to your retirement years, it’s more than just the end of your career—it’s the beginning of a new chapter of your life that can be filled with new possibilities and financial freedom. 

But, this transition requires careful planning to maximize the benefits of your new lifestyle with financial independence. 

As retirement planners in Buffalo Grove, we specialize in helping people like you transition into retirement using comprehensive financial planning as the foundation for this life-altering change. 

Today’s blog will provide you with our top retirement planning tips. 

Ready to Retire Today? Preparing for Your Life’s Next Chapter

The Retirement Risk Zone

The retirement risk zone refers to the critical period just before and after your retirement date when your assets are at their peak, and market volatility during this time is a major risk that can significantly impact your retirement savings. This higher risk period typically spans the five years before and the five years after your retirement date. 

Significant market downturns during this phase can severely impact your retirement plans and create a new risk – outliving your assets late in life. You and/or your spouse may live another 30 years or more in retirement, making longevity planning crucial.

A “bucket approach” to asset allocation is one strategy that should be utilized during this period. This involves investing in multiple “buckets” to minimize your risk of large losses. It is a defensive tactic that is highly recommended for investors in the risk zone. By effectively managing the allocations to these buckets, you can help protect your assets from the excess risk that can impact financial security during retirement years.

For example:

• A short-term bucket strategy could include cash in savings accounts, money market funds, CDs, or bond ladders intended to cover costs not covered by other sources of retirement income. Your goal is to minimize the risk of invading the principal that produces the income. 

• An intermediate-term bucket might consist of a mix of fixed income such as high-quality intermediate bond funds or annuities, and more conservative well-diversified stock funds that can be used for reinvestment or funding your retirement lifestyle.

• The long-term bucket could include a portion of your portfolio that can be invested in growth-oriented assets, like highly-diversified stock and bond funds (e.g., a 60/40 or 70/30 stock to bond fund portfolio), which have a higher potential for appreciation over time but also have higher volatility. This bucket is intended to be tapped into much later in retirement, giving it plenty of time to recover from potential market declines.

Mental Preparation: Embracing the Change

Transitioning from a structured 8-5 work life to the freedom of retirement can be exciting and more challenging than may be anticipated.

One of the most common questions or concerns we hear from people is whether they saved enough money to last through their retirement. This is more complex than you’d think, as ensuring a stable income without a regular paycheck requires careful planning. This is where a Buffalo Grove CFP® professional can greatly assist you. This professional can craft a retirement plan that includes a comprehensive investment strategy for managing savings, determining when to take Social Security benefits, and minimizing the tax consequences of your financial decisions. 

It’s normal for people to identify themselves based on their role during their working years. Work often defined their identity and sense of purpose. That’s why finding a new source of fulfillment and engagement outside your professional life is important. This could be through social connections, volunteering, travel, activities, or getting involved with your local community at some level. 

Adjusting to a different daily routine can be challenging. Finding a balance between relaxation and engaging activities is crucial to maintaining an active and satisfying lifestyle. Whatever you do, don’t isolate yourself. Get out there and enjoy this new freedom during your retirement years. 

Listen to our newest podcast, “Money and Madness.”

Crafting a Retirement Budget: Balancing Expenses and Desires

Retirement budgeting goes beyond basic expenses; it’s about creating a balance that allows you to enjoy the next 30 years while maintaining financial independence. Some work-related costs will go away, but there can be new expenses, such as travel to exotic destinations. 

You may face a recurring critical choice – do I want it or need it? This choice impacts several expense categories that must be considered in a detailed budget that details your regular expenses, occasional splurges, and unexpected costs to avoid financial strain on your assets. Rule #1: Don’t spend principal unless necessary to meet your needs.

Preparing your taxes? Watch our co-founder, Gabriel Lewit, discuss tax preparation ideas on WGN 9 News.

Healthcare Considerations: Navigating the Gap Before Medicare

If you retire before becoming eligible for Medicare, it’s important to understand your options and compare them for alternative coverages and costs: 

• You may have the option to extend your employer-sponsored health insurance for a limited period, typically up to 18 months, under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

• You could join your spouse’s plan if they are still employed and have group health insurance coverage.

• You can purchase a policy directly from a private insurance company or through the Health Insurance Marketplace, where you may qualify for subsidies based on your income.

• Consider a health-sharing plan where members share healthcare costs.

• Some part-time jobs offer health benefits, which can be a way to obtain coverage until you qualify for Medicare.

• Some employers offer health benefits to early retirees until they become eligible for Medicare.

• Some states offer high-risk pools as a safety net if you have pre-existing conditions that may make it difficult to secure traditional insurance.

Watch our co-founder, Steve Lewit, on WGN 9 News.

Pre-Retirement Checklist

Planning for retirement is not just about the financial aspect—it’s about building a lifestyle that brings you joy, independence, and fulfillment during the coming years. This checklist includes some of the more important items that you should consider as you prepare for retirement:

• Assess your current financial situation and future projections to ensure your retirement savings align with your lifestyle, goals, and legacy.

• While you’re still employed, maximize your retirement contributions. Take advantage of catch-up contributions if you’re over 50 and ensure you’re maximizing tax-advantaged accounts like 401(k)s and IRAs.

• Work towards reducing or eliminating high-interest debt to free up more income for savings and investments.

• Do you have a tax planning strategy in place once you have retired?

• Consider your healthcare options once you retire. This could include Medicare and supplemental insurance. 

• Determine when to start claiming Social Security benefits to maximize your lifetime income while considering any potential tax implications.

• Assess your investment portfolio for proper asset allocation, risk exposure, and potential adjustments that may be needed as you approach your retirement dates (both spouses).

• Develop a strategy for converting your savings into a steady income stream, considering various withdrawal strategies and potential tax implications.

• Ensure your will, trusts, and beneficiary designations are up-to-date and reflect your current wishes.

• Explore insurance options or savings plans to cover potential long-term care needs.

• Reflect on your retirement lifestyle goals, travel, and hobbies to ensure your financial plan supports these sources of enjoyment.

• Think about where you will live once you retire. You may be ready to downsize, move to a new community, or acquire a second home in a warm winter climate. 

If you’re nearing retirement and would like to speak with a team of retirement planning specialists, we invite you to connect with us for an introductory conversation.