Retirement on the Horizon? How to Prepare for the Next Chapter

Are you emotionally prepared for retirement? Many of us spend decades saving and planning so we can step away from the workforce with financial confidence, but before you hand in your papers, there is something else to consider.

In fact, some retirees discover that leaving a career is much easier than figuring out what comes next. If retirement is three to five years away, now may be the ideal time to begin preparing for both the financial and personal aspects of this next chapter.

Build a Retirement Budget Based on Reality

Many people assume their expenses will decline once they stop working. While some costs may be reduced or removed, other expenses are added or increased. Travel becomes a higher priority, and maybe you want to spend the winter renting a place where you can dip your toes in the sand. Home improvement projects move to the top of the list. Kitchen and bathroom remodels, patio expansions, and new roofs are not inexpensive.

Have you factored in potential expenses for your adult children, such as weddings, home purchases, and spoiling grandchildren? Is there a possibility that you might need to assist aging parents with long-term care expenses?

Do you have expensive hobbies? Golf clubs and greens fees aren’t cheap, nor are mahjong tiles and accessories. Surprise! You will probably spend as much money in retirement as you do now.

Understand Retirement Income

You have spent most of your adult life saving for retirement and living on your working income. What happens when the paychecks stop? You spend from your portfolio. Withdrawing money from your investment accounts can make you nervous and uneasy. But that is why you planned for retirement—so that you can spend from your portfolio.

A common misconception is that taxes disappear when the paychecks stop. Not so fast. When investments are sold from a brokerage account, capital gains taxes may be owed, and withdrawals from traditional IRAs and employer retirement plans create taxable income. Depending on income levels, Social Security benefits may be partially taxable. Required minimum distributions from retirement accounts can increase taxable income and potentially increase Medicare premiums.

Fortunately, many of these issues can be addressed through proactive planning.

Understanding how various retirement income sources work together before retirement can help you make informed decisions and avoid unpleasant surprises in retirement.

Understand Healthcare Costs

Healthcare costs can be a significant expense for retirees. If you retire before age 65, you will need to determine how you will obtain health insurance coverage until you become eligible for Medicare. At age 65, you can enroll in Medicare, which provides broad and important coverage, but it does not pay for everything. Premiums, deductibles, copayments, prescriptions, and dental and vision care are expenses to consider. In addition, many people underestimate the potential impact of long-term care expenses.

The years before retirement are an excellent time to review insurance coverage, understand Medicare options, and discuss long-term care considerations. Taking the time to develop a plan today can provide greater confidence tomorrow.

Start Exploring New Interests Now

So, you have worked with an advisor, and you know you are financially on track for a comfortable retirement. But what are you going to retire to? Retirement is not always the best time to start searching for purpose and direction.

For decades, work has likely provided structure, routine, social interaction, and a sense of accomplishment and identity. Work is not only what you do; it’s part of who you are. Once that structure disappears, how will you fill your days? How will you remain fulfilled? Not every day of retirement is a vacation, and you can only play so many rounds of golf.

The happiest retirees I have worked with are often those who already had interests, hobbies, volunteer opportunities, or community involvement established before their final day of work.

If retirement is on the horizon, start your research now. Join a local organization, volunteer for a cause that is meaningful to you, or reconnect with interests that you have pushed aside. These activities enrich your life today and provide a smoother transition into retirement.

Strengthen Relationships and Social Connections

Work provides more than a paycheck. It also provides daily interaction with colleagues and clients. When retirement begins, many of those interactions naturally decrease, which is why strong personal relationships become increasingly important. I recently experienced a smaller version of this when my husband and I became empty nesters. Without having to make plans, we interacted weekly with good friends through high school sports and events. Now, we must intentionally schedule gatherings with these dear friends.

Friends, family, and social engagement play a meaningful role in retirement satisfaction. Think about the relationships you want to strengthen and how you can make that happen. Building those connections now creates a stronger support system and a greater sense of fulfillment later.

Summary

Most people spend decades preparing financially for retirement. Yet some of the most successful retirees I have worked with have spent time preparing emotionally for it. If retirement is only a few years away, consider using this time not only to strengthen your finances but also to envision how you want to spend your days. Speak to your financial advisor for more planning help. Retirement is not simply about leaving work behind. It is about creating a meaningful next chapter.

About Us | Get the Bedel Blog | More Retirement Articles