David K Little, CFP®, CFA

So you finally have retirement in sight. All the years you’ve spent toiling at work are finally about to pay off, and you’re getting ready to enjoy the golden years you’ve worked so hard to prepare for. As fee-only financial advisors in Fullerton, we’ve helped many of our clients plan for and transition into retirement. Based on those experiences, here are four steps that have worked well for people as they approached retirement.

1. Establish a Budget

You may have never had a budget in your life. Maybe you’ve socked money away in your company’s retirement plan for 40 years without thinking. Maybe you work for one of the few employers left in America that provide a pension for retirees. And maybe you’re at the point where you think the money in the retirement plan or the pension payments will be enough for you to live on in retirement. And maybe you’re right. But maybe you’re not.

For our clients, working through their expected expenses in retirement has been a great way to ease into the financial reality that is retirement. Most people will find themselves in a situation where their income during retirement is less than the income they had while they were working. Realistically looking at that lower retirement income and comparing it with expected expenses will help you figure out whether retirement really is doable.

I’ll never forget the couple who thought they’d never be able to retire on the income we projected for them. He was a doctor earning a high six-figure income and thought he’d need to continue bringing in that income until well after he had turned 65 years old.

We walked through the couple’s planned expenses, and between some pretty steep reductions in mortgage expenses (the house was going to be paid off soon), car payoffs, employment-related expense, and a lower tax bill, they could achieve retirement much earlier than they had expected. The couple has been happily retired for almost 10 years now, and they’re still glad they went through the budgeting exercise.

2. Set Realistic Goals for Your Portfolio

Nothing can torpedo a successful retirement like having unrealistic expectations for a portfolio. We met with prospects years ago who extrapolated the returns the stock market provided in the 1990s and thought they’d earn 15% per year forever on their retirement funds. Unfortunately, those people never became clients of ours because they didn’t want to hear our advice to lower their expectations about future returns.

We had a similar experience earlier this year when a lady came to see us about retirement and wanted advice on whether she should continue to withdraw about 15% of the portfolio every year. While that might make sense for someone in their late 80s, it didn’t make sense for someone in their mid-60s, and we had to tell her that. Again, counting on unjustifiably high market returns is a dangerous way to plan for retirement.

Another realistic goal you probably should have is that your money should last until you’re at least 90 years old. According to actuarial tables, there’s a better than 50/50 chance that at least one person in a 65-year-old couple will live past 90. Making adjustments to these tables for access to high-quality health care and other life-sustaining options (diet, exercise, etc.) causes us to run retirement projections assuming that people will live to 95 years old or longer. One of our clients promises that he’ll live to 122, and he’s doing everything he can to make that happen. Another client recently passed away just days before her 106th birthday. So the point is not to underestimate your life expectancy.

3. Have a Plan for What You’ll Do with Your Time

Some of the most successful retirements we’ve seen don’t have a whole lot to do with money. One of our clients is a former nun who changed careers and became a school teacher just after she turned age 50. She was diligent about saving money in her new career, but the vow of poverty she’d taken meant she needed to do a lot of catching up. She retired at age 65, and although her income is still relatively modest, she’s had a very successful retirement.

She thought deeply about what she’d do in retirement, and she’s followed that course of action for several years now. She has consulted a little, spends time with family, and takes one big trip every other year, although not an ostentatious one. For her, a successful retirement did not depend on a great deal of month-to-month income. Her definition of success was planning out her time and following that plan.

4. Talk to Retirees

We’ve seen new retirees gather solid information about the practical aspects of retirement from friends who have gone through the transition before them. No matter how many spreadsheets we generate showing someone that they’ll be fine financially, it’s always good to hear how retirement feels from someone who’s been there.

Probably the biggest concern people have, no matter the size of their portfolio, is that they won’t be getting a paycheck every two weeks. Even though money might be coming to them from the portfolio every month in the form of withdrawals, they can’t get over the fact that someone’s not paying them anymore.

To sit and have a discussion with other recent retirees is a good antidote to this. As financial planners, we’re very versed in the theory of retirement, but people they know are probably better versed in the reality of it.

You have many other things to consider as retirement approaches, and it’s always a good idea to get the opinion of a professional. Don’t hesitate to reach out to a financial planner for help on this very important subject. As always, we’d suggest making an appointment to talk to an independent, fee-only financial advisor to get advice.

Schedule a 15-minute discovery call with a fee-only financial advisor to discuss your personal situation.