^{Episode 2}
How Do I Retire? Making the Transition With Confidence

Well, welcome back to The Retirement Game Plan. In our last episode, we answered the question can I retire? Today, we take the next step, and that's answering the question how do I retire, or how do I go about the process of retiring? Oftentimes this is where many people feel unprepared, not because of the money, but because of the transition that's about to occur in their lives.

So it's not just a financial decision. It is truly a life transition, and today is all about helping you move into that transition with as much clarity and confidence as we can provide for you. If there's somebody out there that you know who's trying to answer these questions or figure out how they go about retiring, I'd ask that you share the show with them. Forward it on, encourage a conversation, and hopefully this adds value to their experience.

So let's dive in. First off, why does this transition matter? Most advice in our industry focuses solely on the financial side. Do you have enough? Where's your money going to come from? All those little things. But very little planning actually goes into the transition itself. That's kind of an overlooked item, but oftentimes it's where a lot of mistakes can happen.

You'll remember from our last show that you're now moving from a time of life where you're earning income to now relying on the assets you have to generate an income. I've heard lots of stories over the years about how as long as you're earning money, you can work your way through about anything, and that's pretty true. But that changes when we transition into retirement, because now we're relying on what we have to generate the income we need.

So what does that shift entail? It's going to entail a change in our finances. It's going to entail a change in our routine, in how we're spending our time. And another big one is it's going to change our sense of purpose. We have to address all of those items, and that's our goal for today's show, to walk through some of that. A key idea I'd leave you with before we move on is that a good retirement is not just about whether you can retire, but about how you retire, and all of that needs to be part of the plan.

So let's talk about the timing of your retirement. One of the first decisions you'll have to make along this journey is, what is my retirement date? It's not a date on the calendar. It's not March 1st, though it might eventually become March 1st. But when you should retire is really based on the planning and coordination you do prior to that event happening. Things to consider include your income, your Social Security application, securing your healthcare, and the impact retirement may have on taxation for that calendar year. What we really need to answer is what does day one income look like?

A simple story here. A couple of years ago, we had someone retiring at 63 who wasn't going to turn on Social Security until age 67, their full retirement age. If I retire at 63, Greg, and I don't turn on my Social Security, how am I going to make this work? That's what I mean by day one income. We had to pull a little extra income from other sources to make up what they weren't going to get from Social Security for another four years. Quite frankly, that happens a lot with the planning that we do.

What would happen if I waited a couple more years? What does that do to my plan? I'll tell you a story. We had a client we recently worked with who was about six to ten months away from what they thought was their target retirement date. We assembled the Financial Game Plan, looked at all the different scenarios, built them a model, went through cash flow, and what we found was that if they retired on the date they had targeted in their own head, they would have had a less than 30 percent chance of successfully meeting all the goals they had put down.

So we went back and played with the model and maneuvered some things around. We allocated some different changes in their budget and spending habits, and then we had a hard discussion with them. We told them that if they delayed their retirement date another couple of years, it would make a drastic difference in the outcomes they were looking at. Was that conversation fun? Absolutely not. But the science and math told us we could make a drastic improvement if they spent a little more time working. After that discussion, they were relieved to know they could successfully retire by putting in just a couple more years of work. They decided to do that, and now it feels like an entire weight has been lifted off their shoulders.

Those are the decisions we've got to dive into, moving from can I retire into how I go about it. Another thing I think is pretty important here is that it's not always about whether you're ready to retire, but whether you're being pushed into retirement. A lot of times people come to us with a belief that they're supposed to retire, whether they put that on themselves or picked it up from a family member or from keeping up with the Joneses. A lot of people, when they hit 65, feel like they have to retire, even if they may not want to.

So you have to take into account how much you enjoy the work you do. Do you like the people you're spending your time with at work? Are you enjoying your time there, or are you ready to move on to something different, something with complete freedom and choice? I've worked with a lot of clients over the years who retired before doing any of this planning, and honestly, it's a mess. They've made poor decisions. They've withdrawn money from accounts they shouldn't have. They've paid more in taxes than they needed to. They've missed deadlines.

I think back to a client who didn't realize that when he turned 65 and left his employer health insurance, he had to secure a prescription drug plan, even though he wasn't on any prescriptions. Three years later, when he came into our office, we found out he now had to pay a penalty for the remainder of his life because he didn't know or understand that rule. So timing is very important, and making sure all the levers that go along with that process get pulled is really vital.

Let's talk about some of the key decisions that need to be made in this process. One of the first is a pension. Not everybody has a pension plan today, but for those who do, there are lots of options to choose from. Do I take a lump sum payout? Do I take a lifetime of income just for me? Do I take a lifetime of income for me and my spouse? There's math that goes into those calculations, but there are also other factors.

I think back to a client who had a pretty good sized pension and some kids she wanted to make sure had dollars left for them. Throughout our discussion she said, well, Greg, what if my husband and I die too young? What happens to the money inside that pension? The answer, basically, is that it goes away. So for her, we made the choice to take a lump sum distribution, purely based on her desire to leave that money to her children. Another client, presented with the same scenario, still loved her kids and wanted to leave something for them, but the math was drastically different, so it didn't make sense for her to take the lump sum. She was better served by taking a lifetime of income from the plan, so we chose that instead. The key is to not just consider the math, but to consider the outside factors when making a pension election.

The next big decision is your 401(k) or your retirement account through your employer. Age matters here, and what a lot of people overlook is that if you're younger than 59 and a half and roll those dollars into a traditional IRA, there are ways to access that money, but it's not a free pull without incurring some sort of tax or early withdrawal penalty.

We had a client we helped roll over her 401(k) in her late forties. The plan had grown, circumstances had changed, and she lost her job at age 56. She was debating whether she could retire. At 56, her money was already in a traditional IRA, and if she took money from it, she'd be incurring a penalty on top of the tax she knew she owed. We found a provision in the tax code called a 72(t) option that allowed her to take certain distributions over a set period of time, and by doing that, we were able to help her move into retirement. We've had others where we chose to leave the money in the 401(k), because a 401(k) has the ability to distribute at age 55 under certain circumstances. Lots of variables, but those are the decisions that need to be made.

Next is Medicare and healthcare. This is often a challenging situation, one you need to have a strategy for. If you're prior to 65, you've got to figure out how to secure healthcare until you reach age 65 and can move onto a Medicare plan. You might have a COBRA option through your employer, or you might choose to play the subsidy game through the Affordable Care Act. Whatever pathway you choose, we've got to account for the premium dollars, and that's usually a pretty big change for people who had employer-provided health insurance for their entire career.

If you're over 65, it becomes a process, and I say that because it's not an easy thing to just go secure your Medicare plans and the programs that go with them. A story: this goes back a couple of years. A husband was turning 65 and his wife was retiring at the same time. She'd had the employer group plan for her entire career. We started the process three months before their retirement date, went onto the Social Security website, and applied for Parts A and B for the husband. We filed that application on October 12th, and on December 31st, a day before that plan was supposed to be in place, we had no Medicare cards. That doesn't happen every time, but it's why you want to start well before your target date. We got it done, but there were a lot of hoops and hurdles along the way.

So we always tell people that it's at least two to three months prior to your target date that you want to begin the Medicare process, because you have to secure Parts A and B first. Once you have your card in hand, you can go out and start looking at the supplement, the prescription drug plan, or explore an advantage plan of some sort. It all needs to be coordinated, so timing matters.

The next one is exit sequencing. That sounds like a pretty in-depth term, but the best analogy I've always used with clients is to imagine a factory. At that factory, there's one guy in charge of pulling levers, and each lever accounts for something. One might be income, one might be Social Security, one might be health insurance, one might be your pension election. Whatever those levers are in your situation, the sequencing of those pulls becomes very important.

I've seen so many people over the years who retired on, say, May 1st, but didn't have the levers pulled properly, so by June 1st they didn't have enough money in their account and they were scrambling. They didn't understand why they'd gone from a world where they collected a paycheck every couple weeks and had the cushion they deserved, to being in kind of chaos. That's what I mean by exit sequencing: the ability to pull all those levers at the right time so that nothing changes in your financial world. You're just moving on with whatever's next in life, and everything else is taken care of.

The key takeaway here is that these decisions are all connected. They shouldn't be made in isolation. They all need to be part of a plan that creates a smooth transition into retirement.

Now let's talk about one of the most unique things in this process, and that's the first year of retirement. We spend all this time planning ahead of the retirement date, but we often forget about the adjustments that need to be made in that first year of actually being retired. Some of what we talked about in episode one was all about creating income streams and knowing how much you need and where that money is going to come from. All of that is super relevant, but what's more than likely going to happen is that once every day is Saturday, those plans get thrown out the window, because your needs are different. You're spending more money than you anticipated. You took one extra trip you didn't see coming, but it was too good to pass up.

So that's where the adjustments need to be made, and some questions need to be asked. Do I feel stable? Am I confident in my income plan? How about my spending habits? Am I comfortable knowing what I'm spending in retirement? I remember, this goes back five or six years, we had a client we'd built a plan for. We were dialed in, they were ready to retire, and in their first year of retirement they spent over two times what they had projected they were going to spend. Do you suppose that ran into a problem? Of course it did. It created a real problem in their long term plan. So we have to be aware of that, and the importance of that first year is that it helps you adjust and determine what changes need to be made, and it builds the confidence you need as those changes occur.

Now for the biggest part of this entire deal, which is emotional readiness. Everybody in the industry wants to focus on numbers and returns and products. But in this question of how do I retire, we have to address emotional readiness, because retirement is way more than finances. Retirement is a complete change of your routine, your purpose, your expectations, the daily grind you go through. It's altogether different, so we have to prepare for that.

I want you to understand this is not an easy process for a lot of people. My dad is a perfect example. He was a worker, so the idea of retiring was very challenging for him, because he didn't know what he was going to do. He worked his whole life, and for most of it he worked multiple jobs. He used to say, you can't watch Gunsmoke every day, all day. That's not a plan. So you've got to start thinking about where you're going to spend your time, who you're going to spend it with, and what purpose or passion you're going to bring into that time.

I hear this a lot in the conversations we have, and it might resonate with some of you: people want to pass down the values that were taught to them by their parents or grandparents. But in today's world, you go see your grandkids or even your own kids, and everybody's on their phone or playing a video game. So how are you going to connect with that person? You'd better have a plan. We encourage all of our retirees to sit down and truly develop one. We have a tool we call Retire on Purpose, which helps people think about who they want to spend time with and the purpose behind it. It goes well beyond the honey-do list, which is simple and, quite frankly, usually gets done within six months anyway. It's after that where we have to prepare ourselves.

At first it's going to feel weird, and it truly will. How am I going to instill values in my grandkids or my own kids, or pass along the knowledge and wisdom I've earned over 40 or 50 years of working? But if we don't have a plan in place to do that, I'm certain it won't happen, because in today's world it's all about whatever technology can catch someone's attention and keep it.

Probably the best story I can tell on this, since I talked about Dad, I'll talk about Mom too. As Mom walked into retirement, she found her purpose. It's really cool to see her doing the things she does, whether at church or playing pickleball, a sport I don't believe she'd ever played before the last couple of years. The people she plays with say she's a little too competitive, but she should be, because she's my mother, and that's who we are as people. She's gotten involved at her church, started playing pickleball, has people she rides horses with during the week, and still has time to come to all of our kids' ball games.

It's a little tough for me to talk about some of this, but I think that's not by accident. It's done with intention. I'd encourage all of you to take that same approach: set intentions, have a purpose, have a passion in life you want to dive into and live out. That's a big part of the emotional readiness we're talking about.

So how does the plan bring all of this together? In episode one, we talked about the can I, what I call the science and math of your plan. You have to know your numbers, know you have enough, and know where it's going to come from. The second part of the plan has to start addressing the timing, the sequencing, as I referred to it. Again, it's the guy at the factory pulling the levers at exactly the right time to create a smooth transition where you don't have to stop living your life. A true plan covers all of those moving parts, and a true advisor should be addressing them in your conversations.

I think it's overlooked often, because most of the time when I bring it up to people, they look at me like I'm crazy. But I can tell you, those who have the plan, just like I shared about my own mother, it makes a difference. The plan needs to coordinate all those decisions, time them properly, and address them throughout the process. The further ahead we can plan, the better off you're going to be. Several years prior to your retirement date is ideal to start.

Again, it comes down to answering can I retire, and then how I retire, and all the different levers that need to be pulled. It's pretty stressful. It's not an easy transition, but having a structured process makes a world of difference.

So in closing, stepping into retirement is not automatic. It needs to be intentional. What it's really about is making thoughtful decisions, having a clear plan, and giving yourself time to adjust. It won't be perfect on day one. Keep working, keep adjusting as you go. If you take one thing from today, it's that retirement isn't a date. It truly is a transition, and it's a transition that should be planned.

I hope some of this resonates with you. If you're running into these conversations or having these thoughts, I'd highly encourage you to get a plan or share this show with someone who could use it, on the decisions and the emotional readiness they need to prepare for as they head into their own retirement journey.

Thanks for taking some time today. Now go out there and be great.