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Retirement Planning – Making the Transition from Worker Bee to Retiree

May 22, 2015

Retirement involves a lot of changes, from how you spend your time to how you budget your money. If you are ready to retire, you have probably spent decades diligently squirreling away money. When you retire, you will have to dole that money out just as carefully. Retirement Planning

Many new retirees have trouble making the transition from saving to spending. It is difficult to tell how long a nest egg might last, and making a mistake in the early days could wreak havoc throughout a decades-long retirement.

Experts recommend that pre-retirees take a step-by-step approach to the retirement income planning process. It is easy for workers to assess their income sources and expenses, but retirees have a more difficult time determining how much money will be coming in and how much will be going out.

Estimate Your Expenses

Estimating your post-retirement expenses is an essential first step for any pre-retiree. Your existing budget is a good start, but the expenses you face after retirement could be far different than what you are spending now.

You can probably cross off the line items for business attire and the daily commute, but you may need to add entries for health insurance, hobbies and travel.

Pre-retirees often assume that they will spend less after they stop working, but that is not always the case.

Add Up Your Income

Knowing approximately how much you will be spending is the first step. Now it is time to add up your income and make the comparison. Look at all your sources of guaranteed income, from company pensions and annuities to Social Security. Compare that steady income to your estimated expenses to see if you are really ready to retire. Retirement Planning Advice

You can include other sources of income, like dividends on your stock portfolio and interest on your bank accounts. Keep in mind, however, that investment income is subject to fluctuation. Retirees who are able to meet their basic living expenses through guaranteed income sources face much less stress in their post-work years.

Estimate Your Tax Bite

One of the biggest surprises many retirees face is the impact of taxes. If you fail to account for taxes, you could be in for a nasty surprise. After you retire, you can no longer rely on an employer to withhold taxes and settle up with your respective tax office. You will need to estimate your own tax bill and make payments accordingly.

If you expect to owe more than $1,000 in taxes, you may need to make estimated payments to the tax office on a quarterly basis. Seeking the help of a tax accountant or qualified tax preparer is a smart move for anyone planning to retire.

Set Up a Transitional Account

Setting up a dry run of your post-retirement life and finances is something every pre-retiree should do. You can make all the guesses you want about your retirement income and expenses, but actually living it is something else entirely.

When retirement is a few years away, set up a separate bank account to test out your financial life after work. Deposit amounts equal to your post-retirement sources of income, and pay all your bills from that account. If you have plenty of money to meet your monthly expenses, you can expect a financially stable retirement. If not, you may need to work a few more years and beef up your investment accounts before you say goodbye.

Making the transition from worker to retiree is not easy, but the sooner you start to prepare the better. You have already spent decades saving for retirement. Spending a few more years preparing for the transition can make your post-work life more enjoyable and financially secure.

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