What are the top financial tips for transitioning into retirement?

Ralph Estep Jr.:
00:00

Are you approaching retirement and feeling a mix of both excitement and some significant anxiety? Are you wondering how to make the transition as smooth as possible? Imagine waking up on your first day of retirement, the alarm clock doesn't buzz, there's no rush to beat traffic, and your calendar is blissfully empty. But as that initial euphoria phase and nagging question emerges, am I really prepared for this new chapter of my life? Well, today we'll tackle that question head on, and I'm going to equip you with the knowledge you need to confidently step into retirement.

Ralph Estep Jr.:
00:34

Stay tuned as we explore the top financial tips for transitioning into retirement on today's financial Friday episode of the Ask Ralph Show. I'll put the intro for the audio show here and a video transition before we jump in. Let's remind you that in yesterday's episode, we discussed where you should pull your money first in retirement to optimize your taxes if you missed it. Or want to revisit any of our previous episodes, remember, you can find them all at askralph.com. Now let's hear from one of our listeners. This call comes from Jennifer in Claymont, Delaware.

Jennifer:
01:15

Hello, Ralph. I hope I'm doing this right. Here's my question for you. I'm turning 62 next month, and seriously considering retirement. My husband and I have been diligent savers, but I am still nervous about making the leap. This inflation is really a concern with the price of everything going through the roof, and I am worried that we may not have enough saved for a fruitful retirement. So my question is, really, what are the most important financial steps we should take as we transition into retirement? I'm particularly concerned about health care costs and making our savings last. Any advice would be greatly appreciated. I keep telling my husband to listen to my friend Ralph, so maybe if he hears my voice, he'll actually listen to what you say. Thank you for being a strong voice of faith and really helping me navigate this new season of my life. God bless. Oh, this is Jennifer from Claymont, Delaware, Home of the Blue Hens.

Ralph Estep Jr.:
02:18

Jennifer, thank you for your question. And then yeah, go Blue Hens. Yep, that's my home, a modder, a proud graduate of the University of Delaware. It's very cool to get a question from a local listener. I can still remember those Saturday mornings in the University of Delaware marching band, but like Jennifer, I'm getting closer to retirement than that season of my life.

Ralph Estep Jr.:
02:37

So Jennifer, your question is one that resonates with many of us as we approach this significant life transition, I'll address your concerns and share some personal experience that I hope will help you and others in similar situation. This show is all about answering your questions. So if you have a financial question you'd like me to address, please send it to ralph@askralph.com or visit our at askralph.com

Ralph Estep Jr.:
03:00

and click on the microphone icon at the bottom left to record your message, your question might be featured in an upcoming episode, just like Jennifer's today. Well, again, welcome to the Ask Ralph Show where we master your finances from a Christian perspective. I'm your host, Ralph Estep Jr., and I'm thrilled you've joined me today. Your financial journey matters to me. I'm here to help you navigate it with wisdom and faith. Join our community and share this episode with others who might benefit from this information.

Ralph Estep Jr.:
03:26

When you join our community, you receive a free copy of my book "Mastering Your Finances." Now this book normally sells for $10 on Amazon, but it's yours absolutely free when you join our email list. As we dive into today's topic, let's reflect on the wisdom found in the Book of Ecclesiastes, Chapter 7, Verse 12, it says this, "Wisdom is a shelter as money is a shelter. But the advantage of knowledge is this wisdom preserves those who have it." Wow, that's a great one.

Ralph Estep Jr.:
04:01

This verse reminds us that while financial planning is important true, security comes from the wisdom we gain and apply in our lives. Jennifer, my plan for today is to provide you some valuable wisdom to help you in considering this transition to retirement. I'll transition to the main content. Jennifer, let me address your question and explore the top financial tips for transitioning into retirement.

Ralph Estep Jr.:
04:23

I've learned this throughout my career working with individuals, and I've come up with this list to help you. Number one thing you've got to do, you've got to assess your current financial situation. You got to know your current position before you can plan for the journey ahead. That's just a fact. The first step in preparing for retirement is to set a clear picture of your current financial state. This means taking stock of all your assets, all your debts and your income sources.

Ralph Estep Jr.:
04:49

You gotta be specific, list out your retirement accounts, your savings accounts, your investments and any pensions or Social Security benefits you expect to receive in the future. Listen, I just work with a client in doing this and he shared with me that when he first sat down to do this for himself, it was a bit overwhelming, but he found it incredibly empowering. He discovered some forgotten investments and realized he was in a better position than he thought.

Ralph Estep Jr.:
05:12

On the flip side, he also identified some areas where you need to make some changes. So Jennifer, here's your first action step, create a comprehensive list of all your financial assets and liabilities. Don't forget to include things like the value of your home, any valuable collections you might have, or expected inheritance you're going to receive in the next couple years. Let's move on to the second thing, and that's number two. Estimate your retirement expenses.

Ralph Estep Jr.:
05:38

You need to estimate how much money you'll need in retirement. Now this can be tricky, because your expenses will likely change. Some costs may decrease, like community expenses, while others, like health care, may increase. And listen, I deal with this every day. My older clients, their most of their money goes towards medical, for insurance and all those kind of things. So you got to plan for that. So when so when? So going back to my client, I talked about earlier, when he was planning his retirement, he really underestimate how much he'd spend on travel and hobbies.

Ralph Estep Jr.:
06:08

He was always dreaming of visiting the Holy Land and he didn't account for how much that would actually cost. So make sure you factor in both your needs and your wants. You want to live a healthy and fun retirement. So here's your next action step. Jennifer, create a retirement budget. Start with your current expenses and adjust them based on how you expect your lifestyle to change. In retirement, it's going to change.

Ralph Estep Jr.:
06:31

Let's move on to number three, and that's develop a retirement income strategy. So once you know how much you'll need, it's time to figure out how you'll generate that income to make it happen. This is where you decide how to withdraw from your various accounts in a tax efficient manner. Remember, we discussed this in detail in yesterday's episode, but the general rule is to start with taxable accounts first, and then move to tax deferred accounts like traditional IRAs, and finally, tap into those tax free accounts like Roth IRAs had many clients make the mistake earlier in their retirement of withdrawing too much from their tax deferred accounts, which pushed them into a higher tax bracket. I don't want to tell you to do, don't repeat their error.

Ralph Estep Jr.:
07:10

So here's another action step, Jennifer, create a withdrawal strategy that minimizes your tax burden and ensures your money list as long as you need it. So let's look at number four. We kind of talked about this a few minutes ago, and that's consider health care cost. Jennifer, you mentioned being particularly concerned about health care costs, and your right to be health care can be one of the biggest expenses in retirement. If you're retiring before 65 you're going to need to bridge the gap until you're eligible for Medicare. Remember, Medicare starts at 65 is this where you want to look into COBRA coverage from your employer?

Ralph Estep Jr.:
07:45

Now it gets expensive. You want to look at that closely. You also might want to look at individual health insurance plans. Once you're eligible for Medicare, understand your options for that supplemental coverage. That's a whole minefield in itself. I was meeting with a client a few weeks ago, who shared his story related to this very issue, he had a wake up call a few years ago when he needed an unexpected surgery. His Medicare Advantage Plan covered most of it, but he still had significant out of pocket costs. It reinforced for him the importance of having a robust health savings account or an emergency fund for medical expenses.

Ralph Estep Jr.:
08:19

You know, I always talk about those emergency funds. So Jennifer, here's another action step, research your health care options and factor these costs into your retirement budget. You also want to consider Long Term Care Insurance as well. Done a few episodes on that, but maybe it's time to revisit that. And number five, review and adjust your investment strategy. As you transition into retirement, you likely need to adjust your investment strategy.

Ralph Estep Jr.:
08:44

The goals shift from accumulating wealth to preserving it and generating income. However, this is a big deal. Don't make the mistake of becoming too conservative with retirements potentially lasting 30 years or more. You still need some growth in your portfolio to outpace inflation, I found success with a balanced approach, keeping a mix of stocks for growth and bonds for stability. But remember, everyone's situation is different, so consider consulting with a financial advisor to determine the right strategy for you.

Ralph Estep Jr.:
09:14

So Jennifer, here's another action step, review your asset allocation and make sure it aligns with your retirement goals and risk tolerance. Now that's a fancy way of saying, meet with your investment advisor and make sure you've got a good plan moving forward. Map out a good strategy. Let's move on to number six, and that's create a social security strategy. Deciding when to start Social Security benefits is a crucial decision. You can start as early as 62 but remember, your benefits will be reduced, 25% actually.

Ralph Estep Jr.:
09:45

If you wait until your full retirement age, which is going to be between 66 and 67 or a little bit after, depending upon your birth year, you'll receive your full benefits. But here's something a lot of people don't know, but if you delay those benefits until 70 you're basically going to. Increase your benefits for the rest of your life. It's all a big hassle. You got to look through it and figure out what's best for you.

Ralph Estep Jr.:
10:05

Now, I've got many clients that have chosen to delay their benefits until 70, and it's made a significant difference in their retirement income. However, like I said, this decision depends on various factors, including your health. You know, if you're not healthy, maybe you're going to start that early. Gotta look at your other income sources, and ultimately, you got to have that crystal ball out and say, you know, what is my life expectancy?

Ralph Estep Jr.:
10:26

So Jennifer, here's another action step, carefully consider your Social Security Options and how they fit into your overall retirement income strategy, number seven plan for required minimum distributions. We talked about this yesterday. These are those RMDs. If you have a traditional IRA or 401K, you'll need to start taking minimum distributions at age 73 now that's the current laws.

Ralph Estep Jr.:
10:48

These withdrawals are taxed as ordinary income, and they can impact your tax bracket, and that little secret thing called IRMAA, which is your Medicare premiums. I've seen way too many retirees caught off guard by RMDs. One friend of mine forgot about them entirely, and he faced a hefty penalty. Don't let that happen to you. So Jennifer, here's another action step, understand your RMD obligations and factor the ninty retirement income plan. Let's look at number eight. I came up with this when I thought it's a cool one.

Ralph Estep Jr.:
11:18

It says, Consider a retirement dress rehearsal before you fully retire, consider living on your projected retirement budget for a few months. This can help you identify any gaps in your planning and give you a realistic idea of what retirement will be like financially. I have a client and his wife did this for six months before they retired, and it was eye opening for them. They realized they underestimated their entertainment expenses and were able to adjust their plan accordingly. So Jennifer, here's another action step. Try living on your retirement budget for a few months while you're still working number nine, don't forget about estate planning.

Ralph Estep Jr.:
11:54

What may not be the most pleasant topic. Nobody wants to talk about this stuff. Estate Planning is crucial as you transition into retirement, make sure your will is up to date. Consider setting up a trust if appropriate, and review your beneficiary designations on all of your accounts. Truth is, I recently updated my own estate plan and found it gave me great peace of mind, knowing my affairs are in order, and that's something I'll be talking about on tomorrow's show, those seven documents you need to keep so you make sure you listen tomorrow's show. So Jennifer, here's another action step, review and update your estate planning documents.

Ralph Estep Jr.:
12:28

And number 10, yes, we're at the end. Stay flexible and be open to change. Finally, remember that retirement planning isn't a one and done activity, life changes. Markets fluctuate and new opportunities arise, you've got to stay flexible and be willing to adjust your plan as needed. I've had to make several adjustments to my own retirement plan over the years. So Jennifer, here's my final Action Step. Review your retirement plan annually and be prepared to make adjustments as needed. So to recap, the top financial tips for transitioning retirement are these.

Ralph Estep Jr.:
13:02

Number one, assess your financial situation. Number two, estimate your retirement expenses. Number three, develop a retirement income strategy. Number four, consider those healthcare costs. Number five, review and adjust your investment strategy. Number six, create a social security strategy. Number seven, plan for those required minimum distributions. Number eight, consider a retirement dress rehearsal.

Ralph Estep Jr.:
13:30

Number nine, don't forget estate planning and last but not least. Number 10, stay flexible and open to change. Jennifer, I truly hope these tips help you feel more confident about your transition into retirement. Remember this, retirement is not just an ending, but it's really a new beginning with proper planning and faith in God's provision, it can be one of the most rewarding phases of your life. And if you'd like personalized help with your retirement transition or any other financial matter, I invite you to schedule an appointment with me. Just go to askralphpodcast.com/store,

Ralph Estep Jr.:
14:03

and book your session. And as I talk about tomorrow, we'll be discussing one of the seven documents you should always keep you won't want to miss this essential information. Be sure to tune in. Well, thank you for listening to the Ask Ralph Show. Remember this my passion is to help you achieve financial success, live out your dreams and grow in your faith. That's why I do what I do. So until next time my friends stay financially savvy and God bless you.