People work hard for decades before they reach retirement age. Many individuals spend years planning their retirement and are ready to have free time for the things they love. However, when the time comes to transition from full-time work to retirement, people often struggle to adjust. Their lifestyles and finances change drastically, and they don’t know how to handle these changes. How can a person make this transition easier?

Investment Updates

In the months before retirement, a person should review their investment portfolio. They must see if their allocation must change, particularly when they plan to live off their investments’ earnings. For example, a person may want to look into putting your 401k into a crypto IRA. Before doing so, they need to determine how much of their funds should be invested in this way. Now is an excellent time to examine whether the allocation for taxable accounts should change or not, as well as the allocation of tax-deferred assets. This step is crucial when a person is nearing the age where they must take the required minimum distributions.

Spending Habits

Most retirees must review their spending habits to see where changes have to occur, and individuals often forget to include this in their retirement plans. They don’t have a spending strategy when they quit working. A financial advisor can help determine a spending strategy to ensure enough funds are left to live retirement as desired. This individual can help a retiree understand their accounts and how to plan for withdrawals from these accounts strategically.

Many retirees assume they will spend less money because they aren’t going to work every day. Retirees tend to spend more in the months following their retirement. They have more free time and spend money when filling this time. Fortunately, most individuals adjust their spending in the months following their last day of work.

Social Security

Every person nearing retirement age must determine when they should begin taking social security benefits. Timing these benefits depends on the person and their financial situation. As of 2024, a person cannot legally start taking social security benefits before age 62. Those taking benefits at 62 must understand they will not receive the full amount. Full benefits are only provided when a person reaches the full retirement age. This retirement age is between 66 and 67, depending on the person’s birth year.

Any reduction in benefits is permanent, so the individual will receive less of these benefits until they pass away. Men and women who delay taking their benefits earn an 8% annual credit for every year they delay. A person may delay taking benefits until they are 70 and receive more benefits.

Men and women should talk with a financial advisor to understand their options regarding Social Security benefits and the consequences of each option. When people file for social security benefits, they may also become eligible for other benefits. Individuals who begin taking Social Security benefits before age 65 will receive Medicare coverage when they turn 65, even if they have different insurance.

When planning for retirement, a person must decide when to begin taking distributions from their retirement assets. They need to know how long they plan to take these distributions and how it will affect their marginal tax rate. Qualified charitable distributions may be used to fulfill the requirements for distributions, so this option should be considered for those with enough income and assets to fund their expenses. Transitioning to retirement is a significant step in a person’s life that comes with many adjustments. Individuals should plan for this period and work with a financial advisor to ensure they have the funds to make this transition easier.