Transitioning to Retirement Is Like Moving to a New World – Bring a Map

To truly be ready to retire, you need to fully explore the unfamiliar territory ahead. Your retirement future can be broken down into five distinct "worlds," each with its own danger zones that you need to navigate.

(Image credit: Compassionate Eye Foundation)

Maybe you managed to pull together a down payment for your first house without some sort of formal savings plan. Many people do.

Maybe you even got your kids through college without any real strategy for how to pay for it. It happens.

So maybe you think you can lick this retirement savings thing, too. Perhaps with a buy-and-hold investment strategy, or simply figuring it out as you go, you’ll hoist yourself over one last financial hurdle before you hit the finish line. Good luck.

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Retirement isn’t the finish line; it’s the starting line for a whole new way of life. One without a paycheck.

You’ll be living off relatively fixed finances, on an income you determine yourself. So, the decisions you make as you transition from working to retirement will help establish how long your money will last and how comfortable you’ll be. To make the journey to and through retirement without some sort of plan just might be the most daunting endeavor you could ever take on.

Yet, people try it. Some without even realizing how unprepared they are. Like a married couple I met with recently in my office: Mid- to late-50s. All assets focused on growth. No income plan, really, just a hodgepodge of investments that meant they’d do well when the market is up and have to live leanly when it’s down.

They had a portfolio. They needed a plan.

Over the years, we’ve seen investors in this same situation over and over again. Some are worried, some unaware, some simply naïve about what they’ll need for the retirement lifestyle they want. All are vulnerable — even if they’ve worked hard at saving — because they’re traveling new territory without a map.

So we talk about the obstacles they might encounter that could keep them from experiencing the retirement they want. There are the obstacles they know about — and those are typically the concerns they come in with — but there are also barriers they don’t foresee that could keep them from enjoying their wealth to the fullest.

Wealth has two sides: lifestyle and legacy. If you could wave a magic wand and have anything you wanted, what would that look like? Think of it like pulling up Google Maps: You put in the destination first and then find your way.

We call our process the “Retirement Navigator,” and it takes each client through five “worlds” they should explore before and during their retirement.

World No. 1 – Income

Maybe you’ll have a pension, and, of course, there’s your Social Security benefit. But you’ll likely need to use your nest egg to make sure an adequate retirement paycheck keeps coming month after month. The first step for most is to change focus from accumulation to preservation. When you retire, the rules change. You can’t just ride the market up and down the way you did when you were younger and had time to recover from a loss. You’ll want to include strategies that provide consistent income, so you can have the lifestyle you want no matter what happens in the market. These strategies might include income-producing real estate, guaranteed annuities, CDs and/or bonds.

World No. 2 – Growth

The challenge here is to put together a portfolio that’s less vulnerable to volatility but still includes investments that will help offset inflation. This could include a more focused approach — an institutional portfolio or actively managed account — to help minimize risk and take advantage of growth opportunities. You also might want to consider alternative investments such as commodities or real estate.

World No. 3 – Tax-efficiency

Of course, your income and investment plans won’t be worth much if you end up giving most of your money back to Uncle Sam. So you’ll want to make sure all the pieces of your plan are working in the most tax-efficient way. It seems as if many Americans’ CPAs are on one side of town and their financial advisers are on the other; they might talk once a year or not at all. Why not bring the two together when building and modifying your overall plan? That way you can be sure you’re not only making the best moves year to year but also through your entire retirement and even to the benefit of your beneficiaries. Consider tax-favored investments or insurance products that can minimize your tax bill in retirement.

World No. 4 – Health and Long-Term Care

According to one report from the U.S. Senate, the cost of seniors’ most commonly used brand-name drugs is increasing at 10 times the rate of inflation (opens in new tab). The U.S. Centers for Medicare and Medicaid Services projects health care spending will rise 5.5% annually (opens in new tab), on average, from now until 2026. Long-term care costs are just as daunting; Genworth’s “2018 Cost of Care Survey (opens in new tab)” reported annual median costs of long-term care support services increased an average of 3% from 2017 to 2018, with some categories surpassing by two to three times the 2.1% U.S. inflation rate . The insurance industry is creating more products aimed at long-term care, including life insurance that allows you to access the death benefit under certain circumstances. The important thing here is to explore all your options before you need care.

World No. 5 – Leaving a Legacy

This is another often-ignored piece of retirement planning. A 2017 Ameriprise study (opens in new tab) found that most survey participants (83%) want to leave money or assets to a loved one; however, only 64% feel they’re on track to leave an inheritance, and even fewer (50%) have a formal plan in place. It’s possible to design a plan that helps accomplish your income goals first, while allowing room to leave a legacy. This is also an area where there can be a disconnect among advisers, so make sure your financial adviser, CPA and attorney are on the same page regarding your wishes.

Having a navigation process can help you maneuver past the obstacles on the way to retirement and allow you to enjoy yourself more once you get there. You won’t have to monitor the stock market or worry about which world events might affect your nest egg. Instead, you can put your energy into crossing off the items on your bucket list.

Fee-based financial planning and investment advisory services are offered by Ladin Financial Group, a Registered Investment Advisor in the State of Florida. Insurance products and services are offered through Ladin Consulting Group. Ladin Financial Group and Ladin Consulting Group are affiliated companies. Investing involves risk, including the potential loss of principal. Any references to guarantees generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Our firm does not provide, nor is any statement contained here in intended to provide tax or legal advice, all individuals are encouraged to consult with qualified professionals prior to making any decisions about their personal situation.

Kim Franke-Folstad contributed to this article.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Michael Ladin, Investment Adviser Respresentative
Founder, CEO, Ladin Tax and Financial Group

Michael Ladin is founder and CEO of Ladin Tax & Financial Group (opens in new tab), a firm that focuses on assisting Florida business owners, Baby Boomers and retirees with retirement income strategies that work in a tax-efficient way.