The last step may take a while to really plan how you want to live your life for the rest of it. This step involves a lot of time to think through and practice retirement before completely giving up a paycheck. Previously, we talked about working less and becoming more involved in the things you enjoy most, whether that be hobbies, family life, travel or whatever else you are passionate about.
Phasing in retirement means gradually working less hours, and earning less money. The idea is to create your terms at work so you can cut back your hours over time. Don’t be afraid to ask your manager for what you want. A key to negotiating is understanding your worth. Know the value you bring to your firm, and be able to quantify it. Numbers are always important to measure worth. You must also know the value you can bring to other firms – in case you need to walk away from your current firm and seek reduced hours and consulting work elsewhere. There are helpful websites that will allow you to compare your job with the going rate outside your firm. Glassdoor.com and Payscale.com are two of these websites that will give you leading information on your job type and what other firms are paying for the same line of work. If you find your manager is ready to work with you on a decreased work schedule, congratulations – you’re almost there. Negotiate terms and go for it. It’s important to remember, you may have to walk away from your current position and seek work elsewhere. Don’t walk away until you have made your exit plan elsewhere.
Your take home pay should be able to support your living expenses and the active lifestyle you wish to live when you have more time to yourself. At this point you should already have enough emergency reserves should you be completely out of work for at least 6-9 months. You should also have enough retirement assets that will sustain you when you finally do need to start pulling funds out to supplement your income. You are going to transition yourself from the accumulation mode, preparing for retirement, to a holding pattern – where you practice retirement with no savings. Eventually you will move into the distribution mode where you start withdrawing your assets. If you can sustain yourself and your living expenses without touching your investments, this is optimal. Go through your budget again and find ways to get leaner. Working less may mean reduced auto and dining out expenses. Ideally your retirement assets can continue to grow and build even though you may not be saving any additional funds. Let your assets “bake” as you practice retirement and work out what a clear picture of retirement is for you. It’s important to understand, before I ever make the recommendation to clients to start phasing in retirement, I always verify through a retirement income analysis if they financially have the means to stop saving for retirement now, and delay pulling from their retirement accounts for another 5 years. You must be quite sure you can afford this before you start phasing in retirement. If you aren’t sure, but would like a second opinion, I’m open for consultation.
Let’s look at an example of how this plays out with an imaginary client named Jill. Jill is ready to pull back hours at work and spend more time with her young grandchildren. Jill originally planned on retiring at 66 when she reaches full retirement age for social security. Jill isn’t ready to quit entirely, but she doesn’t want to miss out on time with the grandkids while they are still toddlers. Her phase in to retirement begins at age 62. She will cut back 8 hours a week by taking Fridays off. Our original plan had Jill working full time until age 66, at which time she would begin to collect social security and withdrawals from her retirement accounts. Under the new plan, Jill will stop contributing to her 401k plan at age 62, but delay withdrawing funds until she is age 70 – when she quits working entirely. At age 66 Jill can cut back more hours and start collecting social security at her full retirement age to supplement the additional loss of wages. By delaying her withdrawal start date by 4 years, this gives Jill a higher possible outcome of not running out of money while she is still living.
This is just one possible scenario. There are various other ways to do this depending on your own situation and needs. Interested in seeing what your timeline looks like? Contact us at techgirlfinancial.com to see how we can have this customized for you.
To ease into this, get an idea of how you want to live the rest of your life–then lean into the process and practice retirement. This is a good time to get a feel for what you will need, what you will do and how that will look. You might just be surprised at how disciplined you can be with your finances.
Don’t let this scare you. This is your chance to really start living financially like a retiree. By now you have prepared and completed the necessary steps to enact a successful retirement plan. Earning less money is the first necessary step in utilizing that plan. Go ahead, take the leap!
Some people let their careers define them – let this be yet another exciting chapter in your life where you reinvent and redefine yourself.
TechGirl Financial Tip: Make sure you understand all your Social Security options before you start taking payments. You are penalized for taking social security income earlier than your full retirement age. There may be additional penalties of taking out early social security if you are still earning an income. Married couples have different options for maximizing Social Security payments – be sure you are aware of your options before starting. The benefit of proper planning on how you take out social security in retirement may mean a difference of over one hundred thousand dollars compounded over you and your spouse’s lifetime. It pays to seek help on the topic before making your choice. Let us be a resource if you aren’t sure where to start.
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