According to Pew Research, there was a big increase in baby boomer retirements last year, 1.2 million over the historical average! Although there are no reasons cited for the increase, it’s likely that many of those who had been holding off decided to go ahead with retirement when the work dynamics they enjoyed and were staying on for suddenly shifted when the pandemic hit.
At Garden State Trust Company, we help many affluent individuals assess whether or not they are financially ready for retirement. Retirement is a big step, and it’s not just about being financially ready either. Even though retirements were increasing last year, the traditional activity of retirement traveling had been restricted so the shift in having a lot of new time to fill up became even harder for new retirees. If you know someone who is considering retiring or has retired recently, you might want to check out our earlier reaction to the increase in retirements: Retirement Gift Ideas.
One might expect that given such a big year of retirements, we would see a big decrease this year under the historical average. Those that took early retirement can’t take it again, after all. A recent Bloomberg article — Affluent Americans Rush Into Retirement in New Life is Short Mindset — suggests otherwise. New work dynamics may have driven some out of the market last year, but for some that stayed the new work dynamics were preferred. Reopening and shifting back to the previous work patterns may end up driving still more toward retirement.
The housing market today presents a conundrum for those on the cusp of retirement. Many people will choose to sell a principal residence at retirement, taking the tax-free capital gain, and downsizing to more appropriate quarters. The good news is that housing prices have been booming around the country, so many will have even more equity than expected. The bad news is that prices for retirement living arrangements are going higher as well.
If you’re one of the millions facing the decision of whether or not to retire this year, we can help you understand whether you’re financially secure enough to support the retirement you are aiming for. These five steps may seem overly basic, but they create a baseline and framework that helps one switch from an accumulation mindset into a distribution mindset:
Identify all the predictable income streams that you expect to have: Social Security, traditional pension, lifetime annuities, rent from real estate, and portfolio income.
Compile an inventory of all financial and real assets such as: stocks, bonds, mutual funds, certificates of deposit, IRAs, 401(k) accounts and real property.
Estimate your monthly and annual expenses in retirement: Divide the expenses into the essentials—food, clothing, housing, transportation, insurance and taxes—and the discretionary—travel, entertainment, gifts and so on.
Compare income to essential expenses: This will reveal whether there will be an income gap that will have to be filled by touching principal. If you need to take out principal, it may affect the income stream that comes along with it, so caution is needed.
Monitor the plan annually: Each year you should review your plan with your financial professional, making adjustments as needed, as your retirement circumstances change.
Once you know if you’re ready, then it will be time to evaluate further retirement investment decisions make sure you are keeping up with inflation to retain your purchasing power, but staying within your risk profile. Decisions about required minimum distribution of retirement accounts and rolling over one account into another will become relevant.
The professional at Garden State Trust Company handle more than trusts. We handle investment management accounts and provide financial services for young professionals, prospective retirees, and those no longer working. We are able to meet with you in person to review additional things to consider as you approach retirement. Even if you find out you’re financially secure enough to retire, that doesn’t mean it’s the right choice. It will mean that you can rest easy about doing so if it turns out you need to.
