Getting Ready to Retire? Do These 5 Things Now

Retiring in 2012? Read this today

BY Tom Lauricella,
The Wall Street Journal

Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.
The Wall Street Journal — 01/01/12

For some, 2012 will be much more than just another year. It will be the year that, after decades of punching the clock, they'll join the ranks of the retired.

Before making that final commute to work, however, those retiring this year should make a to-do list.

There are important aspects of retirement to prepare for and steps that can make the transition smoother both financially and emotionally. Here are five things to do now.

1. Start keeping close track of your spending
During the planning phase for retirement finances, much of the math was based on guesswork. Now is the time to get real.

Start by going back over the past few months of bills and expenses to get a detailed picture of your spending and expenses. Plan on keeping close tabs on a continuing basis, remembering that some spending may be seasonal — such as holiday presents or greens fees for golf.

Budgeting tools, such as Mint.com, will enable you to highlight certain spending that won't continue after retirement, such as commuting costs.

Keep in mind this will be a work in progress even once you stop working. For many people "it's going to take a year or so before you really get the hang of it, knowing what you are spending your time doing, how you are spending your money," says Jonathan Guyton of Cornerstone Wealth Advisors in Minneapolis.

2. Fine-tune your income expectations
Recent years haven't been kind to savers. A lousy decade for stocks has been compounded by interest rates that are at historically low levels and seem likely to remain low for years.

Unfortunately, 401(k) calculators typically don't rely on current yields when projecting your income during retirement. Instead, they usually rely on historical patterns.

That means some people nearing retirement may be in denial about how much money they can earn from safe investments such as bonds or certificates of deposit, says Lawrence Glazer, a managing partner at Mayflower Advisors in Boston. "You have to be realistic about today's income environment," he says.

3. Start thinking about Social Security
Central to your income planning will be Social Security benefits. You won't know the exact size of the check until the first one arrives, but the Social Security Administration can provide an estimate that should be relatively close. You can get an estimate at SocialSecurity.gov, on the phone or in person at your local office. Be sure to check if you're due additional benefits if you are widowed or divorced.

All this leads to one of the most important decisions regarding retirement planning: when to start taking Social Security benefits. Delaying benefits means larger checks in the future, but it may require eating into your savings upfront. Sit down with an adviser to do the math.

4. Build a cash reserve
One thing you want to avoid in retirement: being forced to sell during a steep selloff in the stock or bond markets in order to raise cash to pay bills.

The solution is to keep enough cash on hand that you can sell investments when you are comfortable. Many advisers recommend at least a year's worth of money.

Advisers have long recommended that retirees hold two years of money in a separate account. A retiree then cuts himself a "paycheck" once a month which goes into a checking account for day-to-day living. "In a perfect world, an investor would begin developing the reserve prior to retirement," says Harold Evensky, president of Evensky & Katz.

A dedicated cash reserve is especially important if you are delaying taking Social Security. "The idea is that this is a bridge account that will deplete itself by the time Social Security kicks in," says Mr. Guyton.

5. Get emotionally ready
Amid the focus on financial planning, don't lose sight of the fact that for most people, retirement is a completely new and different experience that can be challenging on an emotional level.

While many people can't wait to get out of the 9-to-5 grind, there are those for whom a career was more than a job. It was an identity.

"You've got the executive who has worked 24-7…and has always identified his self worth with that paycheck," says Mayflower's Mr. Glazer. "Without that paycheck, he feels a little empty."

Cornerstone's Mr. Guyton urges those approaching retirement to think in terms of "retiring to something" and not "retiring from something."

"If your definition of retirement is framed in terms of what you are leaving, you are setting yourself up for a much more difficult transition emotionally," he says. "Even if it's just some relatively small thing that you are energized about and this is something you get to do right now…you generally do much better."


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Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.