Plan ahead for a smoother transition into retirement





If you intend to retire in your 60s, you need to carefully plan out these years to optimize your tax strategy, as they present a unique opportunity to reduce taxes. This is especially true for those planning on retiring in their early 60s because they will have a larger window of opportunity. If you have retired and have not yet begun to collect pensions, annuity income or Social Security benefits, these could be excellent years to process Roth IRA conversions or harvest long term capital gains on investments, given that your taxable income will be relatively low in comparison to prior or future years. This opportunity evaporates in your 70s, once you are required to take minimum distributions from retirement accounts and Social Security benefits can no longer be delayed. For example, a married couple filing a joint tax return enjoys a 0% federal capital gains tax rate to the extent that their taxable income is below $78,750 in 2019. The standard deduction of $24,400 adds to that $78,750 window of opportunity, creating a powerful tool that can be used in these years where you have more control over your income tax situation than you did in your working years. Think of this as a ‘use it or lose it’ strategy that becomes obsolete for most retirees after age 70.


It’s important to be able to answer this question, particularly for those who define themselves by their work and may feel a lack of purpose without their work. It may be helpful to ‘practice’ retirement by taking longer vacation breaks or spending more time on the activities you plan on doing in retirement. Knowing how you will fill your days in retirement before you retire will allow you to practice spending additional time on these things to help ensure that these activities are fulfilling. Part-time work or consulting may help ease you into retirement if you are not ready to stop working entirely. It is also important to be clear with your adult children if you plan to help them with family obligations. Some retirees look forward to assisting with the care of their grandchildren as much as possible, but others may find caretaking overwhelming or too physically demanding. Think about what role you want to play prior to retirement to ensure that ‘spending more time with the grandkids’ does not evolve into a full-time nannying position, if this is not your intention.


If you are like most retirees, your lifestyle expenses will be higher in the early years of retirement while you are young and active. You will appreciate having the extra cash on hand to accomplish your retirement goals if you are not simultaneously paying for a new roof, vehicle, furnace, or servicing large amounts of debt. Certainly, there are inevitable surprise expenses that come up throughout retirement but replacing a thirty-year-old roof should not be one of them. To avoid big spending disruptions, take care of major repairs and debts before giving up your paycheck. It may also be a good idea to do any major traveling while you are still working, if your employment situation accommodates this.


Just like practicing your lifestyle activities, it’s important to get comfortable with your planned spending budget before you retire. This will help reduce anxiety and uncertainties about budgeting inaccuracies well before you need to stick with a spending plan. This is especially true if high earnings have allowed you to have a loose budget (or no budget) in the past. A budget that is fully itemized and carefully considered is time well spent in helping to reduce surprises later in retirement. It’s easy to remember to budget for common monthly expenses, such as utilities, but more diligence is required to accurately forecast your spending on home maintenance and other infrequent expenditures. At the very least, a full year’s worth of planned spending should be reviewed and practiced prior to retirement. This will allow for a final tune-up to your planned spending while you are still working.


This applies equally to mental and physical health in retirement. Retirement is a great time to reinvent your habits and routines, with more time in your schedule to devote to health. There are certainly many aspects of health that may be beyond your control but staying active and focusing on good nutrition can help you enjoy retirement and may reduce health care expenditures. Pre-retirees should be aware that several studies show retirees are at increased risk for alcoholism and depression. Taking early steps to consider how to maintain positive physical and mental health can reduce some of this risk. Focusing on meaningful relationships, a sense of purpose, and regular physical activity can all help improve your mental and physical well-being.


Nearly every retiree will need to consider the basics. The basics include considering your Social Security filing strategy, Medicare packages, long term care insurance, updating estate planning documents, and other common planning items. Each of these items could have its own dedicated article, so we will not take a deep dive into these topics, as they are probably already on the checklist for anyone about to retire. Here’s a starting point for discussions with your financial planner:

Social Security   A Social Security filing strategy cannot be properly considered without understanding how it fits in with the rest of your retirement strategy. Spouses will often be advised to have at least one spouse defer benefits until age 70. Other income sources, planned retirement dates, family health history, and personal preferences are all factors for consideration.

Life Insurance   Most individuals have a diminishing need for life insurance as they progress through life, with some common exceptions being entrepreneurs and those who are rapidly growing their incomes. It’s important to consider your ongoing life insurance needs as you head into retirement. If your primary reason for owning life insurance was wage replacement, then you may no longer need a policy in retirement. Some retirees may still need life insurance, especially if they are carrying debt, but the amount needed will probably be much lower than in your working years, especially if you were raising children.

Resource Allocation   Most pre-retirees have been paying attention to their investment and income resources, such as investment accounts, pensions, and annuities, for several years prior to retirement. It is a good idea to revisit your portfolio as your plans and goals for retirement become increasingly clear. Knowing how much risk and reward you are carrying relative to your financial goals and psychological preferences is important.

Long Term Care Insurance   While your need for life and disability insurance may have decreased or been eliminated, your need for long term care insurance may be significant. Geography will have a massive impact on this decision, as the cost of care varies significantly throughout the United States. Those with substantial means may be able to fully cover the costs of care through their financial resources.

Medicare   As you approach age 65, it’s important to understand your Medicare options. Specifically, knowing the pros and cons of Medicare Advantage plans and Medicare Supplemental plans is a good starting point. Having a working knowledge of how Medicare Part A and Part B function, as well as open enrollment period deadlines, are all part of the basics that you’ll need to brush up on. The bureau of insurance and your financial planner can get you started. If you plan on retiring prior to age 65, ensure that you have a plan in place to bridge the gap of health insurance from your employee benefits package to Medicare. COBRA and private policies are common tools to help make this work. Perhaps you would like to work part-time for a few years before fully retiring. If so, consider if your employer offers health benefits to those working less than a full-time schedule.

Estate Documents   Life events often trigger a review of estate documents, and retirement is a good time to make sure that your documents are current, reflecting an efficient and effective estate plan. A basic package of documents will often include medical directives, power of attorney documents, and a will. You may need to consider trusts and other estate planning strategies, depending on your unique situation and preferences. A thorough review of named beneficiaries should be a part of this process.

Debt and Credit   In general, reducing or eliminating debt obligations prior to retirement will obviously improve your cash flow situation. Also, having adequate credit available and in place can be a helpful tool to smooth consumption and reduce taxes in the event of a large unexpected expense. This is especially important for retirees who have a disproportionate amount of their assets held in retirement accounts, where large withdrawals can come with undesirable tax consequences. Credit can allow you to spread payments over more than one tax year, potentially reducing tax liability associated with a big withdrawal from a retirement account.