By | February 23, 2016

Transition is simply the process or period of changing from one state or condition to another.  So, transitioning into retirement would be going from a working state to a non-working, retired state.  What does it mean for us to transition into retirement?  And what financial planning is necessary to make it possible?  Considering how to plan for retirement is key.

TRANSITION TO RETIREMENT EXPLAINEDTransition to Retirement Explained

I’ve heard the transition into retirement explained through this picture:  Envision a mouse running fast on a wheel, then slowing to a jog … to a walk, and then finally jumping off to rest.  While we are running fast on the wheel, caught up in our careers and daily activities, we have also been preparing for the future – accumulating wealth.  Throughout the accumulation phase, we have, hopefully, been putting aside a portion of our earnings so that we will be prepared with a nest egg of funds for our retirement years.

The Role of Financial Planning

The first step of financial planning is to clarify our goals and our expected needs.  Then we develop a strategy to bridge the any gap between what we have and what we think we will need.  Ideally, we began to plan for retirement early in our careers and sought the advice of financial planners.  It is crucial to ask for help planning for retirement.  As our life expectancy has continued to increase, planning has become all the more essential to make sure we’ll have enough money to last our lifetime.

Important Questions to Consider

As you read this, chances are good you are still running on that wheel, maybe starting to jog, preparing to transition into retirement.  It’s time to ask some questions:  What is your retirement timeline?  How do you envision the next phase of your life?  How many years until you think you will be ready make that transition?  Are there roadblocks to your goal?  What are your fears?

These are all questions we need to grapple with and ask ourselves as we begin to slow down the wheel and hope to get off.  To simply jump off a fast-moving wheel and stop – well, that could be injurious in a variety of ways and not in our best interest.  So as you begin to answer these questions in your preparing phase, you will see the momentum shifting and the reality of retirement moving closer and closer.

CALENDAR AGE MILESTONESMilestones for Transitioning to Retirement

There are some milestone ages that trigger some important considerations in the transition phase.  People are retiring at ages older and older, sometimes well into their 70s or 80s. So the transition phase may be a long one.

  • Age 50. For example, at age 50, you still have some time, and this would be the time for some “catch-up” contributions to an IRA or 401(k) plan.  Are you maximizing your contributions?  Perhaps you want to retire early, did you know that in some cases you can begin making withdrawals from a 401(k) penalty free at age 55?  There are rules and restrictions to this exception, so you will want to make sure you plan qualifies.
  • Age 59 ½. At age 59-1/2, if still working, you might want to check into “in-service” withdrawals.
  • Age 62. At age 62, you can begin receiving Social Security benefits, but at a discount.
  • Normal Retirement Age:” For purposes of Social Security, individuals born between 1943 and 1959 are at full retirement age, or “normal retirement age” (NRA) in their 66th year; and for those between 1960 or later, your full retirement age is 67.
  • Age 70. Social Security benefit increases end at age 70, and the rate of increase depends on your date of birth.
  • Age 70 ½. At age 70-1/2, the Required Minimum Distributions (RMD) kick in (e.g if born May 15, you would turn 70-1/2 six months from your birthday on November 15).  The RMD is the minimum amount you must withdraw from pretax 401(k), IRA and other retirement accounts.  You can, of course, withdraw more than that.  This does not apply to Roth IRAs, however, as there is no requirement until after the death of the owner.  You will pay income tax on these RMD withdrawals.  You want to be sure to withdraw the correct amount or a tax penalty can be assessed.  You can reinvest it, but you must take it and pay taxes on it.  If you are 70-1/2 and still working, you can delay some RMDs (for instances from 401(k) plans, but usually not IRAs).  These are also questions to work out with your tax advisor or retirement counselor.

CALENDAR DATE BENCHMARKSBenchmarks for Retirement Transitions

 Depending where you are in your transition, here are some calendar dates to keep in mind to maximize your preparedness.

  • December 31st is the last day you can make 401(k) contributions for that calendar year. If taking an RMD (except your first one), you must do so by that date as well to avoid penalty.
  • April 1st. You have until this date to take your first RMD from a 401(k) or IRA (for the prior calendar year—the year you turned 70-1/2).
  • April 15th. Not only is this the deadline to file income taxes, it is also the last day you can make an IRA contribution to apply to your previous year’s tax return.  This can be a win-win because you are saving for your retirement and reducing your tax bill.


To retire with security, it is essential to have a wise transition to retirement strategy.  Begin now to formulate your personal retirement transition checklist.  Use the information in this post to make sure you are positioned well for your transition into retirement, especially from a financial planning perspective.

Please join the conversation by adding your own ideas and questions in the comments below.


8 thoughts on “TRANSITIONING INTO RETIREMENT: Financial Planning

  1. Alex

    Hello David,

    First of I’d like to mention that I am nowhere near retirement age being in my twenties. However, I do recognize the need to start early. I don’t want to be dependent on my children, my government, or a company pension (if that even exists nowadays) to retire with comfort.

    I do agree that there needs to be a degree of planning involved with retirement. You just can’t jump off the wheel of your life and decide to retire. I like the questions you had recommended people to ask in their planning. My fiance and I are definitely going to address some of those question as we continue to plan out for the future.

    Enjoyable read,

    1. David Hagstrom

      Alex, I’m glad to hear you and your fiance are thinking ahead and planning for the future. Enjoy the present as well, but I assure you the time for retirement comes quicker than you expect. For Dana and myself, just a few months away. If you have questions along the way, we’ll be glad to help!

  2. Marc

    Very thorough write up on financial planning and transitioning into retirement. I think many people just go blindly into retirement and dont think about all the costs or ways to save money. Thank you for the informative article. I am still 43 but starting to really push for savings in retirement as I see it just around the corner and dont want to eat catfood.

    1. David Hagstrom

      Thanks, Mark. I’m glad to hear that you are thinking about retirement savings while you still have some time to do something about it. Too many people wait way too long and lose out on the amazing value of compounding interest working in their favor!

  3. Boniface

    That’s a nice and strategic approach to retirement. I like the reminder on age milestones and that reminds me that am aging daily. Preparedness so as to retire with security is so necessary.
    The plans you’ve laid out are well explained. Do they apply for those that target early retirement- like say thirties?

    1. David Hagstrom

      That’s a good question, Boniface. The principles certainly apply for those targeting retirement very early. However, as the timeframes are longer, there is more possibility for error in determining both your anticipated cost of living and anticipated income. It’s basically like shooting at a moving target

  4. Neil

    I would sure love to retire at 35, and I’m currently working towards it so I can start living life on my own terms 🙂

    Running the wheel is not a good place to be, and the worst thing about retirement is a drop in income. Retired people claim pensions that are only 1/3 of the income they had when they were working!

    So you basically have all that free time on your hands, but the lack of money to enjoy the rest of your life. It’s not the way we should live!

    This is a great atricle, and I do belive that in order to create a comfortable life, people should work on their own business to achieve financial freedom.


    1. David Hagstrom

      You bring up an interesting point, Neil, with the words “living life on my own terms.” Many of us today will continue to be active in retirement in a variety of ways, and that may include “work.” Hopefully that would be work we do because we choose to, because we love what we are doing and are committed to the mission, rather than because we have to. Your concern of lacking money in retirement points to the importance of advance planning for secure retirement. Thanks so much for sharing!

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