Most of my blogs focus on tax or financial advice. This blog falls a little into the life advice category as well. Many people say the first few years of retirement can be quite an adjustment. After working for many years, suddenly everything changes. Below are a few tips to hopefully make the transition a little easier.

First, make sure you have a good cash position as you move into retirement. Specifically, if you spend $5,000 per month on the lifestyle you want to live in your non-working golden years, and you bring in $3,500 per month between your Social Security, pension, or rental income, you need to make sure you have the cash on hand to cover that difference. Depending on how much money you have and how conservative you are, a rule of thumb is to have between two-and five-years’ worth of your cash expenses in a liquid account. In this example, you would need a $90,000 cash set-aside to be safe under the 5 years methodology.

While you may be able to access or liquidate your holdings to cover a shortfall, you do not want to be a position that forces you to do so at a time when market conditions or just the health of your particular investments is lacking.

You should also look into ways to structure your life more conservatively. On the one hand, this will mean reducing your living expenses. Downsizing makes retirement more affordable. The less you spend each month, the less you have to afford. If your retirement savings are limited, taking a more conservative approach to your lifestyle could free up the money you will need to cover medical treatment or frequent visits to the grandkids.

However, living expenses are not the only place where you should start being more conservative. Also, look at your investments. According to the Employee Benefit Research Institute, roughly 40 percent of people approaching retirement have more than 70 percent of their investment portfolios in stocks. Many people consider this to be too risky. In general, you should calculate the target stock weight on your portfolio by subtracting your age from 100. If you are 65, your stock weighting would be 35 percent. However, you may want to take on more risk depending on the size of your portfolio and if you have more guaranteed income and/or minimal expenses. Also, try to anticipate your stock weighting changes to your portfolio so you can time your redistribution of investments to take advantage of the best terms.

Conclusion

Early retirement comes with a variety of potential pitfalls. Let us help you be in the best position possible to enjoy the time. Contact us today to get started. We would be happy to answer any questions that you have.