From Start to Finish: Understanding the Different Phases of Retirement Planning
By Jeff Gilbert
Retirement might feel like something far off in the future that you don’t need to think about yet. You can plan for it, save up for it, and even daydream about it, but we often overlook the nuances and details of each retirement phase. Similar to how you started your career at the bottom and worked your way up to being a seasoned pro, you’ll likely go through a few changes during your 20-plus years of retirement.
The path to and through retirement is a slow one, like reading through the chapters of a book. Each chapter has its own challenges, wins, and choices to make. Beginning with the years before retirement in your 50s, here’s what you should know for each part of your retirement journey.
Chapter 1: Your 50s
At this stage of life, retirement becomes less like a far-off dream and more like a forthcoming reality. You begin to seriously think about when you can retire and how to take the right steps to retire comfortably.
During your 50s, you will likely launch your kids into adulthood and experience your highest earning years, which gives you more to work with. But that extra money you aren’t used to having can result in “lifestyle creep,” where your expenses grow along with your pay raises. These increased expenses may not always be nonessential either, as you might become responsible for increased housing costs, education expenses, healthcare costs, and even eldercare costs.
Despite these financial strains, the inflow of new money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early. Rather, these should be the years where you maximize your retirement plan contributions. If you are over 50, you can make catch-up contributions to beef up your nest egg.
Chapter 2: Your Early 60s
You are so close, you can almost taste it. Now you are starting to think about the many details that make up the process of retiring and the financial and lifestyle decisions involved.
If you find yourself in this phase, it’s time to get realistic about the near future. Do you know what you will do next? How will you make it a reality? For example, will you be able to keep up with your current expenses while on a fixed income? Be sure to test out different budgets to make sure your finances are set. Do you want to volunteer or start an encore career? Start mapping out the details now. If you do not have a set plan for the next chapter of life, a phased retirement may give you more of an opportunity to figure it out.
Usually, this is the time to dial down risk in your portfolio. Market downturns have a greater impact on your long-term success as you don’t have the same time to recover. This is what is called sequence of negative return risk. You should speak with an advisor to make sure you have the correct mix of investments that will provide cash flow in the short term and growth in the long term. You also can’t afford to be too conservative as lower growth will be eroded by the rising cost of living.
Chapter 3: Retired Life Begins
The first year or so of retirement is akin to a “honeymoon phase.” You have the time and perhaps the money to pursue all kinds of dreams, so the key is not to spend wildly. Lifestyle creep also affects new retirees, and free time often means more chances to spend money.
When it comes to your investments, your portfolio looks very different than it did when you were in your 20s and 30s. Bond funds and fixed income may make up a larger portion of your investments. Your focus is on generating cash flow to live on and preserving what you’ve worked so hard to save. However, you should still have exposure to the stock market. If you retire at age 65, there is a good chance you have a 30-plus-year retirement ahead of you. As such, you should keep exposure to stock funds for their growth potential.
Up until now, you’ve probably received healthcare coverage from your employer. When you retire, it’s a new ball game. Medicare eligibility begins at age 65. You have plenty of choices for your Medicare plan, such as original Medicare coverage, prescription drug plans, and supplemental insurance. Your premium costs will depend on your coverage choice and your income. Medicare can be complicated and overwhelming, so if you are in this chapter, start researching now to make informed choices.
Chapter 4: Mid 60s Through Late 70s
This is the chapter where restlessness can begin to set in. If you didn’t make concrete lifestyle plans before retiring, you might get bored with your all-leisure, all-the-time lifestyle and decide to volunteer or work on your own terms, health permitting.
It’s also the time when people begin to worry about how their retirement savings is growing smaller. You may want to adjust your retirement income strategy or see if new streams of income can be arranged.
Chapter 5: 80s and Beyond
The last chapter of retirement is one frequently characterized by the sharing of legacies and life lessons, a new perspective on the process of living and aging, and deeper engagement (or reengagement) with children and grandchildren. This is also the time when you should think about your financial legacy and review or update your estate plan so that when you leave this world, things are in good order and your wishes are followed.
Which Phase Are You In?
No matter where you are in life, it’s always helpful to work with an experienced financial professional. They can provide objective advice and answer your questions about income, investments, wealth preservation, and wealth transfer—and instill confidence in your overall financial plan.
At Balboa Wealth Partners, we’re committed to supporting, educating, and guiding each client. We’d love to help you explore your options and create a financial plan for every stage of life. To get started, schedule a no-obligation introductory meeting by giving me a call at 949-445-1465 or email me at [email protected].
About Jeff
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With over three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout the entire country. To learn more, connect with Jeff on LinkedIn or email [email protected].
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
