Part 1: 10 Years from retirement, what is your financial focus?

In Asset Allocation, Cash Flow and Budgeting, Personal Finance, Personal Financial Planning, Retirement Planning by Chip Hymiller

If you’re 10 years or so away from retirement, you’ve probably spent at least some time thinking about what your life will look like after retirement. How will you manage the transition? Will you travel, take up a new sport or hobby, or spend more time with friends and family? Should you consider relocating? Will you continue to work in some capacity? Will changes in your income impact your standard of living?

When you begin to consider all the issues surrounding the transition, the process can seem downright daunting. However, thinking about a few key points now, while you still have years ahead, can help you focus your efforts and minimize the anxiety that often accompanies the transition into retirement.  Here are a couple of suggestions:

(Re)assess your living expenses

Between now and retirement, you likely need to closely scrutinize your living expenses and how they could, or should, change in retirement.  For example, while commuting, dry cleaning, clothing shopping and other work-related costs may decrease, other budget items may rise.

We have found that for many of our clients, they see an increase in travel and recreational costs during the first years of retirement.  Additionally, health-care costs, in particular, may increase as you progress through retirement.

For most people, when it comes to spending in retirement, there are generally 3 distinct time periods.

Phase 1:  This is the early years of retirement.  New retirees usually have a list of places they want to see and, with good health and an abundance of energy, travel and recreation expenses tend to be higher.

Phase 2:  In this phase of retirement, there tends to be less travel and recreation spending, but health is still good.  Overall spending may decline somewhat during this period as overall activity may decline a little.

Phase 3:  At some point in the latter retirement years, health-related expenses tend to increase somewhat.  Sometimes people have assisted living or long term care expenses to cover.  Expenses during phase 3 tend to be more variable.

While no retiree is the same in terms of how long each spending stage will last, but for most, it is driven by their own personal health and retirement goals.

No matter what your individual situation is, you should reassess your budget periodically to make sure your retirement plan still works given your own updated expense expectation.

According to a recent survey, 38% of retirees said their expenses were higher than they expected.  Keeping a close eye on your spending in the years leading up to retirement can help you more accurately anticipate your budget during retirement. Without a doubt, cash flow and spending are the single most important factors when assessing the probability of a successful retirement.

Consider Social Security Income

For most, Social Security retirement benefits is an important factor to consider and plan around.  In early 2016, the average monthly retirement benefit was about $1,300. The amount you receive will depend on your earnings history and other unique factors.

You can elect to receive retirement benefits as early as age 62.  However, doing so will result in a reduced benefit for life. Should you wait until your full retirement age (66 or 67, depending on your birth date) or later (up to age 70), your benefit will be higher. The longer you wait, the larger it will be.

If you plan to continue working, you will likely want to delay your Social Security benefit until after your full retirement age.  If you decide to start Social Security prior to stopping work, your benefit will be limited.  Also, you need to consider your own life expectancy and potentially your joint life expectancy if you are married.  For more information on Social Security, see our article, Common Social Security Questions.

Making strategic Social Security decisions based on your own personal circumstances can make an enormous impact on you financially during retirement.

You can get an estimate of your retirement benefit at the Social Security Administration website, You can also sign up online to receive your Social Security statement, which contains a detailed record of your earnings and estimates for retirement, survivor, and disability benefits. Your retirement benefit estimates include amounts at age 62, full retirement age, and age 70. Check your statement carefully and address any errors as soon as possible.

Stay tuned to the next article where we will discuss other income and investments in retirement.  As always, please let us know if you have any specific concerns about your retirement plan.