Laura McHugh, Spinnaker Trust
Updated: January 27, 2025
How To
How to plan for a working retirement that works for you
By Laura McHugh, Spinnaker Trust
When it comes to retirement questions, people often come to us in search of magic numbers. How much money will I need to comfortably live the lifestyle I’ve envisioned? When can I retire without worrying that I’ll outlive my financial resources? While there aren’t universal answers that apply to everyone, there are a few concrete steps you can take to start answering these questions for yourself.
1. Start early
People often wait too long to consider when they want to retire, and what that might look like. If you wait until retirement is one, two, or even five years out, it may be too late. Starting early allows you to define your goals for success and make meaningful adjustments to your savings patterns, spending habits or even your asset allocation. Do the hard work of building up your nest egg in your 30s, 40s and 50s. At the latest, by the time you reach age 50, you should be consulting with a financial planner to explore different scenarios to determine how long you’ll need to work and what changes might allow you to retire earlier.
2. Think carefully about counting on that “working retirement”
Retiring early with the intention of working as a consultant can be enticing. It gives you an opportunity to stay socially and mentally engaged, while generating income and providing flexibility. But working as a consultant, or in any freelance capacity, can be more complicated than meets the eye, especially if you’re counting on that cash flow to cover living expenses. What overhead expenses will you need to account for to cover necessities like health insurance? What will the tax implications be? If your family’s needs change, how will you be positioned if that income goes away? Does this income allow you to contribute to any type of retirement account? If you think that you’ll supplement your reduced income with Social Security — you’ll want to run your scenario by a specialist. While you can receive Social Security while working, if you exceed certain income limits, your benefits are taxed. It may be prudent to wait until you are done earning income to start Social Security to ensure the maximum benefits for you and your spouse.
3. Carefully consider your retirement readiness
When you retire from full-time work, you’re losing a lot more than just the regular paychecks. You’re losing your 401(k) contributions, any employer match, your contributions to Social Security (often in your highest earning years), and in most cases, your health insurance coverage. If you hope to retire before age 65, private health insurance costs, in and of itself, could be a dealbreaker for the allure of retiring early. Often the most expensive years in retirement can be the first years after you stop working and before you start drawing down Social Security benefits. These early years of retirement tend to collide with non-negotiable big-ticket expenses like college tuition payments, providing for an aging family member, and deferred home maintenance costs on top of those travel plans that you now have the time to do. Being forced to take large drawdowns from savings early in retirement may be feasible, but it’s important to work with an advisor to talk through these planning scenarios so you’re not taken by surprise.
4. Get a reality check
While index funds and online financial tools make it seem easy to DIY your financial planning, navigating retirement without professional guidance is not a good idea. Work with a professional who can offer objective, big-picture perspective, ask tough questions about your spending, and make sound recommendations on how you should time your retirement. The peace of mind you get from having these hard conversations is well worth the investment.
Mainebiz web partners
Most Recent
Most Recent
0 Comments