A lot of folks think of retirement as black and white – you’re either still working or you’re retired. Once the final whistle blows and we’re off starting our post-career lives, we tend to think that all our income streams are set in place for the long haul. Not so. Cue the theme song from the Twilight Zone – if you retire even a few years early, you may be entering a retirement “Grey Zone.”
What is the retirement “Grey Zone”?
Okay, so it’s not that dramatic. No one can magically wish you to the cornfield. But things do change quite a bit over the first few years of your retirement – it’s not a straight line. Depending on your age when you retire, you may not begin receiving Social Security immediately. Medicare enrollment may be a ways off. That pension you’re so lucky to have? That may not start paying out right away either. And what about the part-time gig you have your eyes on?
All of these factors will play a key role in what the Grey Zone of retirement looks like for you. While each retiree’s financial plan is different, there are some key fundamentals that influence income streams when we consider retirement-focused federal programs, pensions, and part-time jobs.
Because retirement and investment planning exist on a grey scale, a straight-line approach to planning doesn’t capture the entire picture. If all of our benefits and income streams kicked in the day after we retired, then, sure, planning would be a breeze. But this isn’t real life.
The Retirement Timeline
Over the past several years, I have developed an approach to charting a course through the Grey Zone. My vision? To provide folks with a simple, understandable retirement timeline.
Here’s the method I use. I start by drawing a timeline. This map starts in 2017, and from left, to right I work with my clients to fill in important financial years along the way. Let’s say my clients are a couple who are both currently around age 60. On our chronology, when we get to age 62 and are first eligible to receive Social Security, we may choose to add in those monthly checks. At age 65, we account for the rich Medicare benefit. If either one (or both) has a pension, we mark when this benefit starts to pay income.
Other issues make the chronology that much more important. Have a date set when you want to start working part-time? We can pencil that in. And what about when our spouse has a different income and benefits timeline because of an age difference? We can chart that, too.
As we fill in each income stream, I also include what the couple’s investment income (from their retirement savings) will be in the year they’ve set for retirement. For ease of understanding and readability, each income stream is color coded with a legend. With just a quick glance at the timeline, retirees can get a sense of where they are on their financial retirement timeline, and where they’re going.
The result is a useful tool – a clear and concise one-page financial plan that maps all of the expected income resources that will kick in sometime after retirement. The timeline accounts for all of the foreseen fluctuations of the early retirement years.
But isn’t bigger always better? The answer is no. I much prefer my one-page version of financial planning to an overly complicated 50-page plan. While these plans can be great for some retirees, they run the risk of being overly complicated and are highly dependent on probabilities of what have versus what you think you might spend. Plus, can anyone remember details from 50 pages filled with numbers and charts?
In reality, most of us will live in the retirement Grey Zone for a while. To map our way through this zone, I believe in my simple and cohesive one-page, color-coded timeline. This resource calendars key financial milestone dates and plots how income sources layer together. Our goal is to simply and closely project the income you’ll have available each month during retirement. Then, you can quickly chart your budget (and fun) around this easy to understand chronology.
The bottom line is fear not. The Grey Zone is a journey, “a journey into a wondrous land whose boundaries are that of imagination.” Planning for it doesn’t have to be scary at all. We’re looking towards a time when we’re easing into full retirement. We may not be traveling 24/7, but we’re not working 60 hour weeks either. This translates into less pressure from work and more time to enjoy our new found freedom.
To get a visual map of your financial plan to retirement click here.