Ready to Retire? Here Are Four Tips for the Transition

An older couple smile at each other while preparing a meal together.

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You’ve worked hard for decades planning for your retirement, and now you’re ready to enjoy the results of that hard work. Making this transition can come with its adjustments, both to your lifestyle and your day-to-day finances.

Here are four tips for making the transition from full-time work to retirement:

1. Understand spending changes.

In retirement, your spending typically has the largest impact on how much money you are able to save. This is why it’s important to plan ahead and create a retirement spending strategy in advance. If you work with a financial adviser, they can help you think through your potential options as you’re going through this important transition and build a strategy that is custom-tailored to your unique needs. You should also consider working with a tax professional to help you understand your different accounts and strategically plan for your various account withdrawals.

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Contrary to what most people might expect, spending tends to increase in the initial months of retirement. With your entire day free, you may find yourself spending more money during the day than you did when you were working. Don’t panic: Once you adjust to your new routine, your spending may settle down.

There are a lot of questions around when to start taking Social Security benefits. The optimal timing will depend on the person and their specific situation.

Sixty-two is the earliest permissible age to start taking Social Security benefits. Keep in mind that your benefits are reduced if you begin taking them before you reach your full retirement age, which is between 66 and 67 depending on your year of birth. If your benefits are reduced, this reduction is permanent and will impact your benefits for the rest of your lifetime. If you delay taking your benefits, you can receive an 8% annual credit for every year that you delay through age 70. So if your full retirement age is 67, and you delay taking Social Security benefits until 68, you would receive 108% of your basic benefit. If you delay until you’re 69, it would be 116%, and so on.

When deciding whether to delay your benefits, you should consider your longevity and the impact on spousal benefits if you are married. For some people, it can make sense to file for benefits before reaching their full retirement age if their benefit as a spouse is higher than their own benefit. For others, it might make sense to delay if they are able to.

It’s important to understand your options and the resulting consequences. For example, filing for Social Security benefits can also trigger your qualification for other benefits, such as Medicare. If you apply for benefits before you are 65, you will automatically be enrolled in Medicare once you turn 65 — even if you have other insurance and may not want Medicare coverage.

3. Assess the costs of Medicare and long-term care.

If you aren’t covered by private insurance, you should understand what is covered by Medicare, how Part D (drug coverage) works and how Part D interacts with Social Security. And if you don’t already have long-term care insurance, look into coverage options and pay close attention to the terms and costs of any policy you consider. You should also speak with a professional about the relative costs and benefits between Medicare Advantage or Original Medicare with Medigap (supplemental insurance).

4. Review your portfolio.

The months leading up to retirement can be a good time to review your portfolio allocation, especially if you expect to live off of your portfolio’s earnings. If you’re close to reaching the age to start taking required minimum distributions (RMDs) from your retirement accounts, you should think about whether you want to implement a different allocation for your taxable accounts and tax-deferred assets.

Some factors to consider:

When you plan to start taking distributions from your retirement assets and how long you plan to take them
If you anticipate your marginal tax rate will be higher or lower further into retirement
Whether you can use qualified charitable distributions (QCDs) to fulfill your required distributions
If you have enough income and assets to fund your expenses before drawing from your tax-deferred accounts

Entering retirement is a significant life milestone, and it can come with its adjustments. Planning ahead, and keeping these key considerations in mind, can help make the transition easier.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment adviser, member FINRA and SIPC.

Disclaimer

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.

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Adam leads J.P. Morgan Wealth Management's Wealth Planning and Advice team, which is responsible for wealth planning, thought leadership and strategic planning for individual clients. This national team of former practicing lawyers provides experience in estate and tax planning strategies, retirement planning, restricted and control stock and stock option management, business succession planning, pre- and post-transactional planning, concentrated position management and other personal planning strategies. The team provides internal training to the J.P. Morgan Wealth Management sales force on these topics and also creates content for distribution to the public.