by | Sep 29, 2023 | Personal Finance | 0 comments

When you retire, life changes – sometimes in joyful ways, and sometimes in unexpected ways.  You can take some of the sting out of the “unexpected” ways by making some smart adjustments during your first year of retirement.  Here are the Top Five smart moves we have seen, both from our view as financial advisors, and from the perspective of our retirees.  

1. Ask and understand: where will the money come from?  One of the biggest issues I see during the retirement transition is worry and stress over where the money will come from.  This is totally understandable – it’s a big shift from receiving a paycheck from your employer to receiving money from your pension, 401(k), or something else.  

Clarity helps to alleviate this stress.  Take the time to understand where your money is coming from and how it works.  Think of it like this: when you retire, you get a new “income machine.” Read the owner’s manual to get the best experience. 

Ask the companies who sponsor your plans about how distributions work and what you should expect. Questions include: what could cause your income to go up?  What could cause it to go down?  This isn’t just in regards to investments.  Even pensions, annuities, and social security have hidden levers that may affect your benefit amount. Knowing how this works can help ease the worry.  Knowledge is power – and peace of mind!  

2. Track your budget.  Sometimes retirees imagine they are going to go broke at any moment.  Others underestimate their expenses and end up having to go back to work.  Having a clear budget tracking system helps you to see where the money is actually going.  This is just as important as understanding where the money is coming from.  

When you retire, some expenses may change significantly.  Your best move is to be aware of this, rather than being fearful or completely in the dark. For example, transportation costs could go down because you no longer have to drive across town to work.  But prescription drug costs could go up because you have a different health insurance plan.   

Getting a handle on your budget gives you the power to adjust as needed.  You can do this in many ways.  You can use your bank’s website to categorize your expenses.  You could try an app like Mint or EveryDollar.  There are lots of options out there – the important thing is to pick one that you will actually use, and stick with it for a while.   

3. Keep a savings cushion.  Put aside at least 3 months’ worth of expenses into cash savings.  This means having a separate savings account that you don’t rely on for day-to-day expenses. In fact, you may want to put this someplace you don’t see it regularly, like a short-term CD, so you are less tempted to spend it unless you’re in a true hardship.  (Bonus: CDs will also make you a little interest these days!)  Having some liquid savings can help to lower your anxiety about moving into a retirement lifestyle.  If something unexpected comes up, you know you can go to your savings account.  It can truly provide a cushion for you to fall back on. 

4. Adjust your investments – but don’t get too conservative!  Yes, you’re moving from contribution years to distribution years, so adjustments should be made to how you are invested.  But don’t pull everything out of investments completely – doing so could cripple your ability to keep up with inflation.  You still need some growth in your accounts, even after you retire.  

We talk about creating a “retirement distribution waterfall” strategy in our investment accounts.  You create 3 buckets: one that supplies one to two years of reliable income (cash); one that maintains account value (stable/conservative investments like bonds); and one that continues to provide growth (equities/growth funds).  The growth bucket feeds the maintenance bucket, which feeds the income bucket.  Having a strategy like this can bring both peace of mind to you and longevity to your investment accounts.  Portfolios can weather storms if they are built with an eye for both safety and resilience.  Remember to include both in your investment planning.  

5. Finally, give yourself some grace and be open to change.  Retirement is a time of transformation, and it will probably feel weird for the first one to three years.  Realize you will likely change your mind during this time and that’s OK.  One day your financial plan may sound brilliant, and the next day you may wonder, “what was I thinking?”  Having a thought partner to check in with during the first year of retirement can be truly valuable.  This can be someone who is just a few years ahead of you, like a retired friend you trust; or someone who can be empathetic and objective, like a financial planner or Financial Transitionist.  Don’t do this alone!  You don’t have to.