Column: How To Time Your Retirement

[Written by Carla Seely]

The answer to this question is not simple, we approach retirement with a lifetime of experience but at the same time we have no idea what to expect. Making the transition to retirement with confidence requires careful attention and planning.

Ask any two individual’s to describe their experience as they prepared for retirement and their answers will vary widely due to their own family circumstances and amount of wealth they accumulated during the course of their working years.

Here are some questions you should ask yourself while planning the timing of your retirement?

• 1. Life expectancy – what are your family dynamics?
• 2. What are your monthly / annual expenses?
• 3. Do I own my home and will I be there throughout retirement?
• 4. How do I manage my money and investment during retirement?

Life Expectancy

Although not always easy to think about, contemplating how long you will live matters when planning for retirement. The potential to outlive your retirement savings is by far the biggest worry that retirees have when moving into retirement. If longevity is within your family dynamics making sure you build a retirement strategy that aims to cover longevity is very important. In the end, you want your money to outlive you, not you outlive your money.

Expenses

How much will you spend? It will depend on whether you are looking to have a modest retirement, a comfortable retirement or a lavish retirement. Some expenses will change at retirement and reviewing those expenses will determine how much money you will need to draw annually to cover them. Perhaps you might only need 60-70% annually of your pre-retirement income to cover those expenses? Create a monthly retirement budget and then use a retirement calculator to determine whether this might be achievable. A great free calculator can be found here to help up crunch those numbers.

House

A family’s home is often thought of as your biggest asset, however, if you still have a mortgage in addition to the ongoing costs to maintain the property, this will be a large monthly expense during retirement. If you plan to pay off your mortgage before retirement, make sure the decision won’t risk long-term retirement funding and put you in a situation of being ‘house rich and cash poor’. In regards to your home, it is important to determine whether your plan is to downsize at a certain time and age and by selling the property you will use a portion of the equity in your home to fund a portion of retirement. The most important thing is to have an action plan prior to retirement, so you know how and where you intend to live while you are in retirement.

Money Management

What will investment returns be like when I retire? In the years before retirement, you are saving and investing for the long term, and can afford to take risk with the benefit of a longer time horizon. During retirement, you may wish to change this strategy to invest more conservatively using more of a diversification strategy. Once you retire, and shift from being a saver to a spender, the consistency of these returns is essential. Low investment returns just prior to or just after we retire can put retirement savings at risk. Diversification strategies on your retirement nest egg will be beneficial.

Like all things in life, timing is everything and when planning for retirement now is the best time to start planning. Planning, strategizing and creating a clear vision will be the goal when timing your retirement.

- Carla Seely is the Vice President of Pension and Investments at Freisenbruch-Meyer, if you would like any further details please contact cseely@fmgroup.bm or call 441 297 8686

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