How to Successfully Transition to Retirement

By Financial Advisor Carrie McDonnell

It’s no surprise that the vast majority of my clients are in their late 50’s to early 70’s - this is the age when retirement shifts from being a distant point on the horizon to a fast approaching reality. Questions start to emerge….am I prepared for retirement? What changes do I need to make financially as I transition into this new chapter of my life? And for many, these questions can produce feelings of anxiety. As one of my clients said incredulously, “I’ve spent my whole life putting money into these accounts. Now I’m supposed to just….take money out?!” That pivotal moment in which a retiree is no longer contributing but withdrawing is harder to adjust to than one might think.

The following are a few questions that frequently arise for those entering retirement:

Should I invest differently when I retire?

Yes, adjustments to your investments and risk profile are typically appropriate. If you have assets in a 401(k) or 403(b) system, which tend to have limited investment options, you could benefit by rolling over those funds into an IRA with more investment options available.¹ In addition, retirees do want to be thoughtful about the risk level of their portfolio. For some, making adjustments to the equity and bond allocations to reduce volatility of the portfolio is advisable.

How do I know if I have enough money saved for retirement?

One of the most common questions I get from clients is, “Do I have enough?” It’s a question that can keep you up at night. Because there are a plethora of elements that need to be accounted for, including cost of living, inflation, Required Minimum Distribution (RMD), estimated rate of return on investments, etc., seeking out a financial advisor to build a retirement assessment is recommended. If you have not yet started taking Social Security benefits, a financial advisor can also help you identify the best age to begin benefits and, for married couples, assess whether taking the spousal benefit is to your advantage.

Which accounts do I withdraw from first in retirement?

It’s generally advisable to withdraw from your taxable accounts first (i.e. brokerage), then your pre-tax retirement accounts (i.e. Traditional IRA) and then your post-tax retirement accounts (i.e. Roth IRA). However, this is not a hard and fast rule, as there are factors that need to be considered, especially if a retiree’s goal is to bequeath assets when he or she passes. For example, trusts are typically designed to make the transfer of assets from benefactor to beneficiary efficient, in which case, it may make sense for the retiree to draw from other accounts first. Another factor that needs to be considered is the RMD tax rule, requiring you to withdraw a certain amount from your pre-tax retirement accounts each year starting at age 73 whether you like it or not. Another consideration for pre-tax retirement assets: while these assets are tax advantaged for the original account holder, the beneficiaries of these types of accounts are subject to a different set of IRS rules, which may make these assets less ideal to pass along to beneficiaries.

Every individual (or couple) entering retirement has a unique set of factors to be considered, so advice is not one-size-fits-all. If you find yourself approaching retirement and wondering some of the questions above, reach out to a fiduciary financial advisor and find some peace in knowing you are prepared.

1. The decision to rollover a workplace retirement plan into a personal IRA account should be considered on a case by case basis, as it may not always be the most prudent choice, depending on the specific facts and circumstances of the case.