New retirees will face financial surprises.  Advisors explain how to stay ahead of these shocks

New retirees will face financial surprises. Advisors explain how to stay ahead of these shocks

Retirement is a major goal that many workers watch for throughout their careers.

However, once people reach retirement age, they are often in store for financial surprises, despite decades of preparation.

For today’s retirees, this is compounded by new uncertainties brought by historically high inflation and recent stock market turmoil.

Ideally, those retiring already have a plan that they have developed with a reputable financial advisor. But even for those who do, retirement can take some getting used to, according to members of the CNBC Financial Advisor Council.

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“This transition from having a paycheck to not having one is fraught with anxiety,” said Jude Boudreaux, certified financial planner and senior financial planner at the Planning Center in New Orleans.

“We just need to learn and establish what the new normal is,” he said.

Start with your “why”

Recent retirees who feel lost should start by identifying what really matters to them, according to Blair duQuesnay, CFP and senior adviser at Ritholtz Wealth Management in New Orleans.

“People don’t spend a lot of time figuring out what brings them the most joy in life,” duQuesnay said.

Saving and investing to build up money for retirement are great habits to adopt while you’re working. But once you retire, you have to find a new set of habits and skills, she said.

I don’t think the market environment is one where you do nothing and pull out completely.

Jude Boudreaux

senior financial planner at The Planning Center in New Orleans

For most people, what matters most is their relationships with family and friends, and spending time with them. Realizing that can help retirees focus less on the numbers on their statements, duQuesnay said.

According to Cathy Curtis, CFP and founder of Curtis Financial Planning in Oakland, Calif., much of the financial anxiety new retirees face figuring out exactly how to replace their paychecks can be handled.

Curtis said she sets either monthly payments or the lump sum equivalent of a year’s worth of expenses. Most customers choose monthly payments, she said.

Remember that retirement is not the end date

Starting to shrink your portfolio while the market is down can be nerve-wracking, duQuesnay said.

It’s helpful to remember that retirement is not the end date, she said. Since it is not known how long the wallet will have to last, it is important to plan for a long lifespan.

Heavy selling during corrections or bear markets is to be expected. Ideally, a retiree’s portfolio projections will have already forecasted these types of declines.

“I don’t think the market environment is one where you do nothing and pull out completely,” Boudreaux said.

“You just want to look at how smart and selective you can be about some of the choices you want to make,” he said.

A key decision for most retirees might be to rebalance, Boudreaux said, because retirement portfolios tend to be too conservative or too aggressive.

Do a reality check on inflation

As inflation hit historic highs, retirees would be wise to check how much higher prices have affected their spending, Boudreaux said.

By evaluating the last month or two, retirees can see if their spending is in line with their expectations, or if it was more or less so.

When it comes to expensive items, it may be best to wait.

“Be careful with buying decisions right now, especially around cars or homes,” Boudreaux said.

Be opportunistic

Sticking to a plan can help achieve retirement goals

Even amid the challenges of the market and inflation, there are strategies retirees can use to get ahead.

By delaying Social Security for as long as possible — until age 70 — retirees can increase the amount of their monthly checks. From full retirement age — 66 or 67, depending on year of birth — to age 70, benefits increase by 8% per year, Curtis noted.

Because these checks are adjusted each year for inflation, a larger benefit base also means larger increases. In 2023, estimates show the cost-of-living adjustment could be 8.7%, well above the 5.9% increase beneficiaries saw in 2022.

By carefully planning for Medicare eligibility at age 65, retirees can try to mitigate their exposure to monthly income-related adjustment amounts, or IRMAAs, which result in additional Medicare Part B and D charges based on modified adjusted gross income, Curtis said.

Another positive: retirees can now have a great opportunity to travel, Boudreaux said.

As the dollar has become stronger, the cost of a trip to Europe can be significantly reduced.

Additionally, new fare sales and lower gas prices may also make it more attractive now to book a flight or hit the road.

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