Investor Column | ‘Easing into’ retirement. Here’s how to get started
A recent survey from the Transamerica Center for Retirement Studies noted that almost 60% of workers worldwide favored a “gradual shift” from full-time work to part-time/consulting work rather than coming to a “full stop” on a certain date. Indeed, phasing into retirement could be a win-win if handled correctly. Employers benefit by keeping the “corporate memory” of experienced employees around, but at a potentially lower cost, and employees get to stay engaged, but hold off on tapping into their retirement savings and Social Security, preserving them that much longer.
The current pandemic and economic downturn are forcing companies to re-think how they do business, including how they employ their workforce. Phasing out older workers may be a better option now than previously. If you are considering this, remember these steps:
1. Explore current options
Some employers already offer “age-friendly” transition programs, while others may be inclined to offer flexible work hours without a formal program, so it’s good to inquire early. Forward-thinking companies should want to build a good set of succession plans for key employees. Everyone benefits from seamless transitions: owners, fellow workers and customers.
However, it no such plans exist or are likely to be available, it may be wise to not tip off your employer too soon. They may be less likely to offer raises/promotions if they think you are leaving. In that case, look at freelance/consulting work elsewhere (explore options online) when you’re ready to transition to fewer hours.
2. Obtain a financial ‘reality check’
Consult with a financial planner before beginning such a transition – preferably years before. To prepare, get a handle on what your living expenses are now, and how they might change in retirement. It’s also best to start systematically eliminating debt before retiring (starting with the highest interest rate debt first). Identify retirement income sources and how much to expect from each.
The “reality check,” then, is to determine if you have — or will have — saved enough to last through retirement. Your financial planner should help to evaluate all of your options. Reminder: withdrawing more than 3-5% of your portfolio annually during retirement is likely to be unsustainable.
Hopefully, you’ve been a systematic saver/investor for years prior to starting this discussion. If not, your options may be more limited. Deciding to “become” an investor just a few years before retirement is usually not a good strategy, either. Most successful investing is goal-focused and planning-driven, long-term. Most failed investing is market-focused and event-driven (short-term) and looks more like gambling than investing.
3. Consider your healthcare coverage
Healthcare insurance is generally most expensive just before becoming Medicare-eligible. If you’re considering leaving full-time work before age 65, evaluate your coverage options and costs before changing your employment status.
Generally, employees at firms with fewer than 20 workers must sign up for Medicare at age 65. Employees at larger firms can choose to keep their workplace coverage and delay Medicare, go on Medicare and drop their employer coverage or some combination. If you’ll be Medicare-eligible when you go part-time or retire, be sure to include the cost of a Medicare supplement policy in your expense budget above.
“Easing out” of the workforce and into retirement could be one of the biggest and best transition decisions you make in your lifetime. Make sure you “look before you leap” to make informed decisions for you, your family, your health situation and your finances.
Karin Grablin is with SRQ Wealth, One North Tuttle Ave., Sarasota, 941-556-9004, www.srqwealth.com. Securities offered through Cetera Advisor Networks LLC, Member FINRA/SIPC. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Cetera is under separate ownership from any other named entity. This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.