As you prepare for retirement, what might you be thinking about in your last decade of work? Do you have specific objectives you’re working toward?
Do you have any ideas about what you’d like your retirement too look like? Where do you want to live? What are some things you’d like to do? Are there special things you’d like to do for family or charities when you’ve retired?
Whether your actual retirement date is a moving target – or one day after you turn sixty-five, you’re done – it’s important to think through a few things to prepare for the day you pinnacle the mountain, plant your flag, and retire from your job.
With About Ten Years Left:
Start by calculating what kind of income you think you’ll want in retirement. I recommend revisiting this calculation every two years as you approach retirement, to gain a more holistic understanding of your future income, spending, and market cycles. It’s also important to review as your life continues to change over this last decade in the workforce.
We’ll want to have a conversation about your spending habits, related to your goals and values. If you’re still in the habit of spending chunks of your paycheck, those habits may put the length your retirement income can support you in jeopardy.
We’ll look to see what non-market-correlated assets you have, that can act as a buffer for income through retirement. If this isn’t currently part of your portfolio, we’ll look at options to bring that part of your financial picture into focus.
We also want to review your debt. If we’ve been diligent along the way, you’re well on your way to becoming a world class saver as well as being debt free.1 So, which debts should you clear before retiring?
What about other debts like car loans or credit card balances? It might make sense to settle some of these obligations before entering retirement. And if you’ve taken a loan against your 401(K) – we hope you didn’t do this – we definitely want to look at repaying that loan before you retire.
Finally, we will start talking about covering senior care, healthcare, and how we’ll deal with medical expenses through retirement.
About Five Years Until Retirement:
Let’s start to put together a monthly spending plan. Can you live on 75% of your current expenses? Inflation will occur. You may want to take on new hobbies – Pickleball anyone? We’ll want to look at what income will be taxed, such as 401(k)s, as well as when you’ll be required to take required minimum distributions (RMDs).
We will also look at what expenses may increase or even go away over time and look for ways to be efficient with your income with a balanced, three-bucket approach to income sources – taxable income such as retirement accounts, partially taxable income such as investment accounts, and non-taxable income sources such as cash value life insurance.2.
This may be the optimal time to check into contractual options, such as deferred income annuities – that will step up income each year until you start taking income. About 5 years is generally a good runway to look at this kind of option.
If one bucket is out of balance, we will look for options to bring you into balance prior to your last day of work.
This is the time we’ll start making decisions about senior and medical care options and how to ensure your family and finances are properly protected in the event of significant medical challenges.
A Couple of Years Until Retirement:
During these years, we’ll formalize your spending plan and formulate a general plan to secure your financial position.
We’ll look at your fixed income options, such as social securities, pensions, etc. For your retirement accounts, we’ll plan the optimal time to begin taking distributions as well as what current tax law says about RMDs. We’ll determine the specific dates for turning on income in annuities as well as what may be the most optimal ways to utilize cash value in your life insurance policies. And we’ll check your risk level to be sure we have the appropriately protective balance across your portfolio.
Planting Your Flag – Retirement Day!
You've budgeted, planned, and allocated resources. Now, it's time for the last-year checklist.
First, we’ll ask you to start to finalize your retirement plans. How so you want to spend your time? What do you want to do with or for family? Friends?
We’ll start to move accounts to optimize your ability to descend the mountain safely and successfully. If your current employer’s retirement plan will be restrictive, we’ll likely move your account(s) into something we manage together.
We’ll also confirm your healthcare coverage and its coordination with Medicare. Medicare coverage has numerous nuances, so we will make a plan to avoid missing deadlines and incurring surcharges.
Retirement is a momentous change. More than just leaving a job, you’re changing your mindset. You’re not accumulating wealth anymore. You’re going to be navigating down the mountain. We’ll help get you there safely, successfully, and with the legacy you’ve worked so hard to leave.
1. Guardian considers someone who saves at least 15 to 20% of their income to be a World-Class Saver
2. Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.