Financial Planning

Retirement is a big change, for lifestyle and finances. We all dream of where we’ll retire to, what vacations we’ll take, but have you really thought about what your life will be like?

It is often met with a busier lifestyle, especially during your first years of retirement, than the relaxing ones we anticipate. After years of experience working with individuals to financially prepare for retirement, we’ve identified four phases of retirement, each with their own nuances and challenges.

Stay on track by using this blog as a guide so you can enjoy the most of your post-working years. Keep in mind that as you proceed through retirement, your lifestyle, personal goals, and objectives will change and, likewise, your financial plan will need to change, too.

Pre-Retirement (Ages 50 - Retirement)

Whether you call it the ‘go-go-go’ or the ‘sandwich’ years, your final working years can play a massive role in setting up your future. This is the time to begin seriously planning for your life in retirement. Here are a few tips to keep in mind as you navigate this stage and prepare for your life of freedom:

• Decide how you want to spend your time in retirement. This may include traveling the world or helping to raise your grandchildren. Perhaps you want to follow your passion by authoring a book or becoming a paid speaker. Whatever path you choose, consider how you will finance it by creating a postretirement budget.
• You are likely in your peak earning years so be sure to maximize your savings with pre-tax and after-tax accounts, like 401(k)s, traditional and Roth IRAs, and HSAs (health savings accounts). Don’t forget catch-up contribution exceptions, and if you have income left over, consider putting more away in your taxable accounts.
• This is a period where we often hear, “I’ve finally earned enough, and I can’t afford to lose it.” It is critical to have a well-defined strategic asset allocation as you approach retirement and begin taking withdrawals. Generally, those with longer time horizons can afford a higher allocation to growth-oriented positions (i.e., stocks).

To summarize, planning and preparation is key in achieving the retirement life you’ve dreamed of.

Early Retirement (Retirement - 75)

You now have time to enjoy all the fruits of your hard work and are looking to celebrate. Some of you will see big changes in your spending patterns, while others may continue spending as you enjoy increased travel and leisure activities. Even if you choose to celebrate, continue to focus on your financial plan and become acclimated with your budget (i.e., ongoing withdrawals).

• Make a withdrawal plan for your many accounts to better control your tax bill. Typically, you will want to redeem from your savings and taxable accounts first, allowing your tax-deferred accounts to continue growing over time. Remember to maintain a reliable emergency fund equal to 6-12 months of expenses.
• If you have not started taking Social Security or other deferred income, such as a pension, this may be an ideal time to consider a Roth conversion. A conversion can ‘fill up’ your income tax bracket while taxable income is low.
• Position your investments appropriately so unexpected expenses do not derail your goals. If you find yourself overspending, make an adjustment to your spending habits or consider a higher allocation towards defensive and income generating positions.

There might be some trial and error during this stage. Be honest with yourself on spending habits – and always reevaluate how you’re withdrawing to ensure you’re maximizing benefits.

Mid-Retirement (Ages 75 - 85)

At this point, you are probably more willing to slow down and enjoy the little things in life. You may be spending less on travel and other luxuries, and in general, you are likely focusing on simpler living and refining your routine. Perhaps this is the perfect time to seriously pursue intellectual discovery or decide what you want to leave as a legacy. Whichever path you choose, here are a few things to consider.

• Consider potential changes in your living situation, such as downsizing or moving closer to your children. This can cause additional expenses and may require an adjustment to your financial plan.
• You may need to address your health or your spouse's health. This might involve considering assistance, potentially having a substantial impact on your finances.
• As we get older, our mental and physical abilities may decline, which makes it all the more important to prepare for the future early on. This is an important time to speak with an attorney about your final wishes, as well as to develop an estate plan if you haven’t already.

To summarize this phase in one word it would be, comfort. Ensure you’re living a comfortable life and consider your wishes and legacy.

Late Retirement (Ages 85 & on)

In this stage, you may at some point begin battling the physical and mental challenges of old age. It is difficult to predict the future, and it is wise to plan for contingencies, like emergency healthcare costs. These are not easy tasks, but they can help minimize the fears surrounding old age.

• This is a time when you are most likely to have stepped up healthcare expenses, especially if you move to an assisted living facility or nursing home. Increased spending and withdrawals may require reworking your investments to be more conservative.
• Make inheriting your assets easier for your heirs through consolidation and simplification. Confirm your assets are titled appropriately, especially if you have trusts in place, and ensure your beneficiary designations are in-line with your estate plan.
• Be realistic about the potential challenges you may face. It is okay to ask for help. Give clear instructions for loved ones by signing powers of attorney and health care proxies, or other legal documents, that allow a trusted person to act on your behalf.

In the last planning phase, remember to celebrate all you’ve accomplished in life.

The Big Picture

Regardless of your retirement stage, keep these final insights top of mind:

1. Your spending will evolve over time, and it is likely to be higher early on and lower in the later years.
2. It is possible you will live longer than you plan for.
3. Managing distributions and withdrawals from your accounts is essential to minimizing your tax bill.
4. Actively managing your portfolio so it adapts to changes in both your life and in markets is imperative.

We only get one shot at retirement. It is essential to have a comprehensive financial plan that addresses your spending, insurance, tax, and estate planning needs. Once created, it is equally important to be hands on with keeping your plan up to date.

Take full advantage of experts and collaborate with a financial consultant to adjust for changes in your life and use an active investment manager that adapts your investments to changing market conditions. This will ensure your investment decisions and planning process are designed to guide you through the retirement years enjoyably and with peace of mind.

Learn more about the services we offer, subscribe to our Financial Planning blog, or feel free to schedule a call with a representitive today. 

The information in this article is not intended as legal or tax advice. Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation.