I’m a Financial Advisor: How To Financially Plan for Different Stages of Retirement
Planning for retirement isn’t a one-and-done kind of thing. There are many different stages of retirement, and it’s important to have a plan for each of them. What this means is that even if you already have a retirement plan, you’ll need to update or adjust it based on where you’re at in life and how well your current plan’s meeting your goals.
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But what are the different stages of retirement, and how can you financially plan for them? GOBankingRates spoke with Joe Buhrmann (CFP, ChFC), a senior financial planning consultant at eMoney Advisor, and Sean Lovison (CFP, CPA), the founder and lead planner at Purpose Built Financial Services, LLC.
Planning During the ‘Pre-Retirement’ Stage
Pre-retirement is the first stage of retirement planning, and it starts during the early phases of your career.
“The mantra here is to make saving a sound, financial habit. ‘Save early; save often’ is the name of the game,” Buhrmann said. “Look to save at least as much in your employer-sponsored plan to receive the maximum employer-match. If you can, seek to save at least 10%-15% of your income.”
At that point, Buhrmann suggested speaking with your employer about automatically increasing how much of your annual income goes toward your retirement plan. This makes it easier to save even more as your income increases.
But don’t stop there. Now’s the time to start focusing on your other investments as well.
“Utilize target-date funds, which are geared towards your anticipated retirement date, to provide a single, diversified investment for your employer-sponsored plan,” Buhrmann said. “You may wish to utilize Roth contributions to your employer-sponsored plan at this stage of your career.”
Consider whether making pretax or after-tax contributions makes more sense based on your current earnings, career trajectory and long-term goals. Along with this, consider using a fintech platform that lets you connect your various accounts so you can monitor your finances as you go.
“This is the time for careful planning,” Lovison added.
This means analyzing your potential income sources and matching them with expenses, fine-tuning your savings goals, and making other financial considerations — like whether to downsize or relocate in retirement. As you approach the big day, make sure your assets align with your risk tolerance and goals — and make changes accordingly.
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Focus On Wealth Accumulation
This is the next phase of retirement planning, though it can also be combined with the previous stage.
“The sooner, the better is the adage for retirement. Emphasize the power of compounding and encourage consistent contributions in the most tax-efficient way. [People] in this stage benefit from growth-focused investment strategies to maximize their retirement funds,” Lovison said.
“The focus is on building your nest egg. This stage involves maximizing contributions to retirement savings plans, strategically selecting investments, and managing debt,” he continued.
Mid-Career Retirement Planning
Around your late 30s to mid-40s or so is also your mid-career stage — depending on when you started working and your retirement timeline, of course.
“By now, you’re likely to have collected a few employer-sponsored plans from former employers such as 401(k)s. Seek to simplify your finances by consolidating these plans — either into your current employer’s plan (if allowed) or by rolling them into an IRA,” Buhrmann said. “As your assets have begun to grow, ensure that you’re properly allocated and diversified across types of asset classes.”
Depending on your financial situation, you may also want to speak with a financial advisor who can help you put together a plan to ensure you’re saving enough money to meet your goals and that your assets are properly managed and allocated.
Make sure you’re taking full advantage of any employer-sponsored benefits like retirement accounts and health savings accounts (HSAs).
“Consider maximizing your contributions to HSAs, and try to avoid using them for current healthcare expenses so that you’ll have access to a tax-free source of funds for healthcare expenses in retirement,” Buhrmann said.
Preparing During Your Late Career
About five to 10 years before retirement is when you’re going to want to make some more changes to your financial plan. In particular, be more aggressive with your retirement plan contributions and cut back on risky investments.
“You’re in the home stretch now. Take maximum advantage of employer-sponsored plans and HSAs,” Buhrmann said. “Begin to dial down the risk tolerance of your investments as retirement approaches. Now is not the time to ‘swing for the fences’ to make up for lost time.”
Now’s also the time to review all of your current and anticipated expenses in retirement. Doing this at least a few years ahead of time will give you a clearer picture of your financials and what other changes you might need to make as you approach the end of your working years.
“Put the final touches on that financial plan. Begin to address major decisions, such as when to claim Social Security and pension benefits, how you will address any pre-Medicare health insurance needs, and so on,” Buhrmann said.
If you decide you need to be more liquid, consider boosting your cash position, too.
“While working, your emergency fund may have had a few months of essential expenses. During retirement, consider having a ‘safe bucket’ of funds that could cover a couple years of withdrawals, so you can reduce the impact of needing to tap your investment accounts during a down market,” Buhrmann said.
And if you have any debts, review them to see if it makes sense to bring any of those with you into retirement or not.
Post-Retirement Planning
Just because you’ve retired doesn’t mean you should stop financially planning. If you’re in good health, there’s still a lot to live and that means a lot of time for potential changes.
The first part of your post-retirement phase is what Buhrmann called the “go-go years.”
“You’re most active at this point in retirement. You may be busy with children and grandchildren, hobbies, or travel,” he said. “Keep an eye on your spending. See how your actual spending aligns with your planned spending. Be cautious of overspending and taking on additional debt.”
At this point, you might be a bit more flexible with your withdrawal strategy — though you’ll still want to be cautious.
“While many subscribe to the 4% withdrawal strategy, your attainable withdrawal percentage can vary depending on investment returns, life expectancy, and so on,” Buhrmann said. “For retirees in ‘the red-zone’ — those few years prior to retirement and the early years of retirement — it’s critical to monitor your drawdown rate to ensure that your money lasts as long as you do.”
You might also want to simplify your finances. This could mean consolidating your different retirement accounts so you can better track your expenses and assets.
“If you haven’t done so already, now is the time to sit down and organize your financial affairs,” Buhrmann said. “Make sure you have a will, durable power of attorney, and advanced medical directives in place. Ensure family members know their role in your plans.”
As you continue to enjoy your retirement life, Buhrmann also suggested reviewing your housing situation and making changes as necessary — whether that means downsizing and freeing up home equity for additional retirement money or something else. He also suggested keeping an eye on your required minimum distributions (RMDs) and donating to charity if that’s something you’d like to do.
Planning for Your Final Years of Retirement
As you approach your final years of retirement, now’s a good time to solidify your plans and get your affairs in order.
“If you haven’t put your final plans in place, now is certainly the time to act on that,” Buhrmann said. “Make sure you have a will, durable power of attorney, and advanced medical directives in place. Ensure family members know their role in your plans. Consolidate assets to allow your financial caretaker to easily distribute funds on your behalf.”
Common Mistakes During Retirement Planning
A lot goes into retirement planning — not surprising considering the whirlwind that is life. But there are a few common mistakes you’ll want to try to avoid as you go.
One is underestimating how long you’ll live.
“People often underestimate how long their retirement might last. Planning for a 25-30-year retirement is crucial to avoid running out of money,” Lovison said.
Another is not starting early enough. Starting as early as possible can help you achieve your retirement and other financial goals.
And don’t forget about investing. You’ll want to be conservative at certain stages in life, but perhaps not all of them.
“Fear can lead to investment choices that don’t keep pace with inflation,” Lovison said. “Balancing risk with the need for growth throughout all stages is crucial.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: How To Financially Plan for Different Stages of Retirement
