Broker Check

Deciding When to Retire

December 06, 2020

1st Vice President, Jordan Taylor, CFP

Jordan Taylor, CFPFor most of our lives, retirement is a distant thought that seems years and years away. Then, as with all things time-related, we find this new phase of life to be just around the corner. But, how exactly do we know when to retire?

To gain additional insight, we spoke with Brooks Financial Group's 1st Vice President, Jordan Taylor, CFP.

Should I phase my retirement, rather than going “cold turkey"?

Jordan: We sometimes see those we serve phase into their retirement. They may choose to go from working full-time to just two or three days a week, over a period of time. The advantage is twofold. The first is lifestyle. It can be a good transition to take your time and adjust your lifestyle so you can figure out how to spend your newfound freedom. The second advantage is a financial one. Phasing your retirement allows you to still have money coming in as we gradually determine how much you need month-to-month to cover your expenses. The bigger part of the picture that often comes into play with retirement is the fear of the unknown. Most people like taking the time to stage or phase their retirement over time because it makes the transition a whole lot more comfortable.

Do I need to change my estate plan once I retire?

Jordan: You may not have to change your estate plan but reviewing it every few years is important. Some people may change their state of residence when they retire. If so, you need to make sure your plan is reflective of your new resident state. The people you have named in your estate or who have key roles may also need to be changed. There may be new people you want to include or others you want to remove. At the very least, review and make sure your wishes and your plan are in alignment.

Should I take my pension in a lump sum?

Jordan: The answer to this question isn’t always black and white. We have to consider the income certainty the pension provides when it is not taken in a lump sum, versus the access to the asset (liquidity) you may desire. Other factors we analyze are income continuation for your spouse or other wealth transfer objectives, the financial strength and viability of the pension provider, and if it’s possible to utilize life insurance to replace the income upon your death. There are any number of factors to take into consideration, such as your Matters of Importance. A financial planner can help you work through all of the scenarios before making a decision.

When should I apply for Social Security benefits and do I need to be fully retired?

Jordan: You don’t have to be fully retired. Most can access Social Security as early as age 62 however, there are income limits on the amount of earned income you can have in any given year if you initiate benefits before your full retirement age. If you exceed those limits, your Social Security benefits may be permanently reduced. The decision to file for Social Security benefits has to be part of a holistic retirement plan to ensure all of your income sources and assets are coordinated to maximize your lifestyle, not necessarily the economic benefit from Social Security.

My company will be downsizing. What should I do if I am offered a buy-out?

Jordan: Much like the scenario we discussed with pensions, there are a lot of things to consider before making a buy-out decision. How close are you to retirement? How well have you planned over the years? What will happen to your health benefits? Will you work elsewhere after taking a buy-out? By answering these questions and others, your financial planner can show you what different scenarios would look like, making the decision easier.

How should my assets be allocated leading up to and throughout retirement?

Jordan: Asset allocation can be defined in a couple of different ways. The classic definition describes how and where money is divided and invested amongst stocks, bonds, and cash, throughout different investments styles based on size, economic sector, and geographic location. However, when we talk about retirement income planning, it’s all about assets being allocated in a way that will provide for or support your retirement income. Here, we look at two different buckets. In the first bucket we look at what assets are available to provide you with the dependable, systematic monthly income that you will need for living expenses. We then allocate assets in such a way as to provide that income. Much in the way a paycheck works, we want to maintain a very similar structure during retirement so you maintain a comfortable lifestyle. The other bucket is more of a periodic or lump sum distribution. Maybe there are things you want to have in retirement – things you want to spend money on, like a few trips every year. You will want to take that distribution whenever you need it, without disrupting what you need on a regular basis.

What other things should I be thinking about at this stage of my life?

Jordan: Two of the most important and common considerations during retirement are where you want to live and how. It’s very common to see retirees downsize, either locally, or in a new location. As a planner, I encourage relationships to try out a place they want to live if they’re considering a move during retirement. Maybe it’s the beach or mountains. Practice living there by taking trips to the community. Stay a month if you can and make sure it really is where you want to live. Long-term care and health insurance are also critically important considerations. The cost of health care may be the largest expense for retirees. Get ahead of that and see what your costs are going to be so you are not surprised, because surprises can alter your plans and reduce what discretionary funds you have to spend. Also, are your assets allocated according to your risk tolerance? See what you spend and want to – both today and in retirement. Understanding these factors ahead of time is critical to ensuring your retirement will go as planned, to the best of your ability.

With markets being so volatile lately, is now a good time to retire?

Jordan: This depends on your level of planning and preparation. If you’ve been a good steward of your wealth and prudent in your decision making, regardless of market volatility, you may still have the opportunity to retire. Again, it all comes down to your level of planning and preparation – and if you’re not sure, speak to your financial planner.

What sets Brooks Financial Group apart from other advisory firms?

Jordan: Before we collect any financial data or analyze any numbers, we understand what’s important to you and your family, your community, or your business. Financial planning is a relationship-based process, not a product-based transaction, and the first step to building any relationship is taking the time and exercising the care to understand, truly, your Matters of Importance.

Learn more about the decisions surrounding retirement by reading "Deciding When to Retire: When Timing Becomes Critical"

Whether you're nearing retirement or just starting to plan, working with an experienced and knowledgeable team of fiduciaries is one of the best choices you can make to help ensure the plans for your future are realized. Take the first step today, by contacting Brooks Financial Group and scheduling a virtual introduction.