Having the Right Tools for Retirement

TOM LAURICELLA

Updated Jan. 25, 2015 12:01 a.m. ET

You wouldn’t play golf without a full set of clubs. Don’t go into retirement without a fully equipped retirement toolbox.

Retirement brings the freedom to explore a new stage of life. But for many, after years of working for others, it also means assuming responsibility for generating a paycheck for decades.

Having a few basic resources at hand can make it easier to navigate the challenges that come with retirement. 

Among those tools: a realistic budget paired with an efficient plan for withdrawing money from savings; an experienced accountant, attorney and source for financial advice; investments that match your cash needs and stomach for losses; up-to-date estate-planning documents; and a nonfinancial plan for staying engaged during retirement.

“It’s important to have a thoughtful plan in mind before you pull the trigger” on retirement, says Clarissa Hobson, a financial planner at Carnick & Kubik in Colorado Springs, Colo. “Having a plan…makes for a much more easy transition.”

Budgeting

The foundation of a retirement plan is a budget. On one side of the ledger: How much will come from Social Security, pensions and savings? On the other: How much will be spent? That budget should be revisited frequently.

Ms. Hobson drills down into clients’ spending habits before retirement and has them take time to see how a planned budget matches actual spending. She says retirees should include infrequent expenses—such as annual insurance premiums—that may not show up on the latest bank statement.

Ron Myers, an adviser at Associated Investor Services, in Fort Lauderdale, Fla., says retirees need to account for bigger expenses that pop up rarely or without warning. That could include a new car, roof repairs or big dental bills. It could also include money expected to be spent helping other family members, such as a grandchild’s education. Retirees “need to make sure their reserve account [can handle] not just one surprise, but another that comes up right after the first one,” he says.

Asset Allocation

Even before retirement, investors should shift to an investment portfolio that matches both income needs and the means to weather inevitable market declines. In all likelihood, there will be no paycheck from an employer to make up the difference.

“Often times, people’s risk tolerance does shift as they are moving into retirement,” says Ms. Hobson.

Team of Experts

Many people go through their working years with only cursory visits to an accountant or attorney, and often no financial advice. But don’t be afraid to ask for help in retirement.

Consider taxes. Many people with an accountant make just one visit a year; others skip the visit entirely, thanks to do-it-yourself tax-preparation software. An experienced tax accountant can produce real savings, says Mr. Myers. “For many people, [retirement] is the first time in their lives where decisions they make have a profound impact on their taxes,” he says.

For instance, poorly timed withdrawals from tax-deferred accounts or pension payouts could mean paying more taxes on Social Security benefits. Even for basic estate-planning documents, stick to attorneys experienced drawing up wills, power of attorney and other planning documents.

And it may be time to consider getting financial advice. Neil Hokanson, co-founder of financial planners Hokanson Associates in Solana Beach, Calif., says he often has clients who are comfortable doing their own finances. “Then after a while they don’t want to do it anymore,” he says. “It’s a job.”

Estate Planning

Updating planning document are a must. That includes a will, power of attorney and a health-care proxy. Beneficiaries on retirement accounts and insurance should be kept current.

“There are a lot of people who have never done planning, or did their plan when their kids were babies,” says Ms. Hobson. “Those plans may no longer be applicable, or the laws might even have changed.”

Mr. Hokanson urges spouses and family members to discuss “contingency plans” for finances and health care, should there be a serious illness or accident. “This gives spouses a lot of comfort, especially for a spouse that may be less engaged in the day-to-day finances,” he says.

A Non-financial Plan

With many retirements stretching decades, older adults need to stay active and engaged, both mentally and physically.

“People are starting to understand that if they don’t have a clear vision of what they like to do that could keep them busy beyond the first couple of months of retirement…they run the risk of becoming couch potatoes and depressed,” says Eve Kaplan, a financial planner in Berkeley Heights, N.J.

Mr. Hokanson sees many retirees helped by a “spiritual team.”

“It is a group of friends one meets with regularly, like a weekly breakfast get-together, to discuss what’s really important to them,” he says. “That’s especially important for guys who tend to live emotionally isolated lives.”