Helping Employees with Retirement Transition

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retirement transition planning Helping Employees with Retirement Transition

People can feel overwhelmed when it comes to transitioning to retirement. Many just don’t know how to save or where to start. We spoke with Dave Kulchar, Executive Vice President at Oswald Financial, about what employees can expect and how to not be overwhelmed with their retirement transition.

The most important financial considerations for employees nearing retirement

Individuals need to organize their financials in preparation for retirement. That includes planning, budgeting, and proper asset allocation.

“With this preparation, employees will need to determine estimated retirement income needs that will cover all their expenses. This also includes reviewing current Wills, Trusts, insurance, or the need to set these up. This ensures that their needs and their loved ones are taken care of,” says Kulchar. “I suggest that people use a spreadsheet to find out how much they will require for basic housing needs, insurance coverage, taxes, food, entertainment, etc.”

Once you understand what your income needs are, you will be able to determine how social security benefits, pensions and your personal savings will cover those expenses.

“Participants need to forecast their potential needed income, and if desired, adjust their current savings rate and investment habits. It is also important to take a detailed look at the many different ways one can claim their social security benefits. This claiming strategy can have a significant impact on life-time benefits,” says Kulchar.

How employees can project the amount they will need post-retirement

One of the hardest parts of saving for retirement is understanding what you will need financially to sustain your current standard of living.

“All too often, individuals are more concerned with their current balance of their retirement plans- losing focus on the future,” says Kulchar. “We like to work backwards; first starting with the ideal budget needed for retirement.  Once a monthly or annual number is estimated, it can then be turned into a total number needed to sustain that budget.  Projections will vary depending on your risk tolerance and time horizon; however, we provide a number of financial calculations that will simplify it for you.”

The information required for a basic projection is your current income, current retirement savings and your desired retirement age. Once all of these things are in place, they should be reviewed annually to determine any change in habits that may be needed to achieve your goals.

Tax implications employees should consider when nearing retirement

Considering the tax implications when nearing retirement is something that employees do not give attention to during the investment years or the accumulation phase, as well as the start of the retirement phase.

“Today’s accumulation tools give investors, or savers, more tools than the past had to offer, such as a Roth vs. traditional IRA or 401K,” says Kulchar. “The ability to save on a tax deductible basis should be discussed and planned, including the current tax bracket and at retirement. Too often individuals have saved with the assumption that they will be in a lower tax bracket at retirement then just prior, which may or may not be the case. Also, one should consider taxable income at retirement and plan accordingly.”

Depending on timing, Kulchar says it could make your social security and other potential nontaxable investments taxable at retirement, and therefore very costly.

How employers can assist employee’s transition to retirement successfully

Plan Design changes and education are the best things employers can do to aid their employees in a successful retirement.

“Education is absolutely key for employees to truly understand the importance of saving for retirement. Although it is not the responsibility of the employer to transition the employee for retirement, we see that more and more employers are offering the proper tools, plan designs, and education to help maintain a successful retirement plan,” says Kulchar.

Plan designs are being used more often to encourage employees to participate at higher levels and increase their savings.  Companies are also offering better investment alternatives with “do it for them” options to get the company plan assets better managed. 

Unfortunately, there isn’t just one thing an individual needs to consider; it is a multiple step process.

Each employee tends to be in unique financial situations, so a cookie cutter approach may not be the right solution between spouses, the amount of savings accumulated, personal situations, etc.

“At the end of the day, we continually strive to be in front of the employees with different topics that help reinforce the importance of saving for retirement. When I sit down with someone that is ready to retire this year, their ability to sustain their current standard of living through retirement is going to be from the decisions they made ten, twenty, and thirty years prior,” says Kulchar.

The sooner a company can support their employees in the process, the better shape the employee will be in when they are ready to transition. By taking the information Kulchar provided, make sure to have a plan in place sooner rather than later and have a goal in mind. If you stick to your plan, you will be able to sustain a desirable lifestyle in your retirement years. 

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