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Transitioning Your Finances to Retirement

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SAVE PDF

You’ve been working, saving, and investing for retirement over the course of your adult life. But when it finally arrives, what exactly should you do with your finances?

Here are some key steps to go through as you determine the right solutions for your retirement.

For many, 65 is no longer the magic retirement age. Some have the financial wherewithal and the desire to leave their jobs early; others retire later. Indeed, almost 20% of Americans today are still working past 65—and some much longer—either because they wish to or need to. And so with retirement more a customized process than a moment in time, what issues arise?

PLANNING:

Understand Your Regular Expenses

The starting point is understanding your ongoing expenses. Take a close look at your regular monthly outlays to find the baseline number for the income you’ll need.

This process will also give you some insight into where you have flexibility. You are in a better position to make lifestyle choices—downsize? travel more?—if you know what your current lifestyle costs.

Plan For Bumpy Outlays

Expenses are always bumpy. A big car repair, a celebration, finally replacing that outdated TV: Researchers say that the average person underestimates—and under-budgets for—these kinds of “exceptional” expenses.

Whatever your baseline monthly expense number is, add a hefty percentage for exceptional items. In fact, retirees often say that they encountered an extra batch of one-time costs early in retirement, as they finally made overdue home repairs or moved.1

DECISIONS:

Project Your Steady Income

With a robust sense of your typical and exceptional outlays, you can finally make some choices about your income, from deciding when to start taking Social Security benefits to setting up the right withdrawal strategy from retirement savings.

Check Out And Decide On Withdrawal Strategies

Which account should you withdraw from first—a 401(k), an IRA, or a regular taxable brokerage account?

Deciding on withdrawals by account type is often a matter of income taxes. Withdrawals from 401(k)s and traditional IRAs trigger income taxes, while qualified withdrawals from Roth IRAs are income-tax-free. Withdrawals from a non-retirement brokerage account are free of income tax, but can trigger capital gains taxes if you sell investments.

One savvy method is to withdraw from your various accounts according to their percentages of your total savings. If your 401(k) represents 50% of your total retirement savings, plan to take 50% of needed income from there each year.2 This method can spread income tax bills over time, potentially keeping you in lower tax brackets.

ACTION:

Shift Your Investment to Income

Once you’re using your nest egg, you should be in a more conservative investment mix. Look for ways to move away from growth-oriented stocks toward income-generating investments. Diversified bond funds, municipal bonds, real-estate investment trusts (REITs), and dividend-focused strategies are worth considering.

Ultimately, retirement is not a single, one-time event. As with other dimensions of your retired life, expect to make some financial changes right away and adjust other things as the dust settles on your new lifestyle.

Sources

1 Abigail B. Sussman and Adam Alter, “The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses,” Journal of Consumer Research 39 (2012).
2 https://www.fidelity.com/viewpoints/retirement/tax-savvy-withdrawals

Related Links

The CARES Act and Retirement Planning

The SECURE Act: How Will It Affect You?

UnPacking “UnRetirement”

A Retirement “Heat Map”: What’s Trending

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People's United Bank, N.A. merged into M&T Bank. It is now People's United, a Division of M&T Bank. Although account documentation or other materials may continue to reflect the People's United Bank, N.A. name or logo, new wealth management accounts opened on or after that date will be opened with M&T Bank or it's People's United Advisors Inc. or Wilmington Trust, N.A. affiliates. For more information please go to www.wilmingtontrust.com, reach out to your relationship manager or refer to your account agreement(s).

Investment products are offered through People’s United Advisors, Inc., a registered investment advisor. People’s United Advisors, Inc. is a wholly-owned subsidiary of M&T Bank. Investment products may involve risk, including possible loss of principal.

Investment Products:

• Are Not Insured by FDIC or any Federal Government Agency
• Are Not a Deposit of or Guaranteed by a Bank or any Bank Affiliate
• May Go Down in Value


Form CRS - ADV Part 2A - Privacy Policy - Legal Disclosure

PUA is not soliciting any action based on this material. It is for general informational purposes only. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors.

On April 2, 2022, People’s United Bank, N.A. merged into M&T Bank. It is now part of M&T Bank and its former branches and most services will operate as the People’s United division of M&T Bank until we complete the integration of our systems later in 2022. M&T Bank is a Member FDIC, Equal Housing Lender and Equal Opportunity Lender.

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