TONI WILLIAMS AND HER HUSBAND, KALVIN, 64 AND 63, REALIZED SHORTLY AFTER RETIRING FROM the Houston Independent School District in 2004 and 2002 that they would need to make some adjustments.
"It's hard to live on 2004 earnings in this economy. Gas went up and so did groceries. We had the opportunity to earn additional income, so we did," says the former full-time speech pathologist who now works through a home health agency. Her husband, a former high school social studies teacher, substitute teaches a few days a week.
The couple is choosing to phase into retirement. To prepare for a gradual transition into retirement, adviser Barbara Walker-Green suggests maximizing 401(k) contributions and planning to live on 70% of your pre-retirement income.
Head of Advanced Wealth and Retirement Planning Concepts and the Williamses' financial adviser, Walker-Green says phasing into retirement allows older workers to determine if they're truly ready to stop working.
"The way you access money you've been saving for retirement is very important," Wilson says. "Do we start with tax-deferred? Do we start Social Security now, or do we delay? Do we annuitize a portion of the money to set up a monthly income stream and cover basic needs?" Wilson also notes that taxes play an important role in determining where to start.
He's seen clients phase into retirement in as little as a year and as long as several years. Walker-Green says it's common to plan for a one- to three-year transition, but she's noticing younger workers planning longer transitions so they can retire even earlier. The Williamses intend to keep working part time for another couple of years.
HERE'S WHAT YOU NEED TO KNOW ABOUT PHASED RETIREMENT:
1 You'll see whether your retirement savings is really enough. "A lot of people don't realize how stressful it is to transition from work to retirement. Phased retirement allows pre-retirees to get a glimpse of retirement, what they want it to look like, and then map it out for themselves so they can transition slowly," Walker-Green says. She helped the Williamses decide when to tap into their annuities, or pension, and ladder other investments so that the couple would have enough money to last throughout their retirement. The pair doesn't qualify for Social Security because of their government-sponsored pensions, but if they did, they could claim their benefits even while continuing to work.
2 Social Security benefits will be temporarily reduced. If you...