Retirement is often portrayed as a life passage — a quick switch from one lifestyle to a very different way of living. While that’s still the case for many people, more Americans are finding retirement to be more of a transition than an overnight change.
For a variety of reasons, it’s less likely that you will attend your retirement party on Friday, and move to a Florida beach condo on Monday. In planning for your post-career days, it’s important to consider this possible transition period, which I call retirement’s “Gray Zone.”
The Gray Zone was born of several new realities. Chief among these is longevity. The fact is, 65 is no longer “old.” When the retirement age was set at 65, most people lived to about that age. Today, we’re living longer, healthier, more active lives — well into our 80s, on average. A quarter of today’s 65-year-olds will live to be 90-plus. So, for many people, 65 is indeed the new 45. As a result, many of us have the desire and option to stay actively engaged with the world for another decade or more.
Of course, this longevity means we need to fund more years of retirement. So, the need to generate more income — along with Social Security considerations — may place us in the Gray Zone. Depending on your age when you retire, you may not begin receiving Social Security immediately. You may not be immediately eligible for Medicare. If you have a pension, it may not pay out right away, either.
All of these factors will shape what the Gray 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 benefit programs, pensions and part-time jobs.
Here’s my method for charting the Gray Zone. I start by drawing a timeline.This money map starts in the current year. Moving left to right, my clients and I fill in key financial benchmarks. Let’s say I’m working with a couple who are both 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 — or decide to wait, in order to eventually receive a bigger monthly benefit.
At age 65, we account for the important Medicare benefit. If the couple is looking to retire before 65, our chronology will factor in the significant cost of purchasing health care insurance until they are Medicare eligible.
Among the other important variables we can chart are income from a part-time “retirement job,” pension payments and the salary/benefits that might continue to flow because one spouse has not yet retired. The couple’s monthly income from their retirement savings is, of course, woven into the timeline tapestry.
For ease of understanding and readability, each income stream is color-coded. With just a quick glance, retirees and prospective retirees can get a sense of where they are on their financial timeline, and where they may need to fill income gaps.
The result is a clear and concise one-page financial plan that 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 build your budget (and life) around this easy-to-understand chronology.
Generally, I start with this one-page version of financial planning before jumping into a complicated 50-page plan. In many cases, this one-page version may be better or more effective than a long-drawn-out plan. While those epic efforts may be great for some retirees, they run the risk of being overly complicated and tend to project what you could potentially spend, versus a baseline of what you will have to spend. Plus, most 30-year projections fall short due to their highly linear assumptions that your investments’ return will hold steady year after year versus the reality that market returns can be highly erratic. Possibly more importantly, can anyone remember details from 50 pages filled with numbers and charts? You will remember your plan and goals if your retirement timeline is in color and on one highly important sheet of paper.
To borrow a line from a classic TV show, the Gray Zone is “a journey into a wondrous land whose boundaries are that of imagination.” Planning for it doesn’t have to be scary. We’re looking toward 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.
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