The Informed Investor

The five years before you retire usher in a transformative period in life. The good news is that you’re nearing a life of fewer deadlines, projects, days spent in an office, and waking to an alarm clock. But in the meantime, there is a great deal of work to be done to ensure your retirement is as enjoyable as possible. After all, you need to be financially secure to enjoy your life post-career. This is not the time to leave retirement planning to chance. On the contrary, it is time to begin an earnest review of your financial status, beginning with meeting with your financial advisor. Here is an overview of retirement planning during the last five years of your career.

Retirement Planning Checklist

Even if you’ve met regularly with your wealth management team over the years, it is time to schedule a full retirement analysis and review of your portfolio. You will begin going step-by-step through your retirement plan to ensure you are either on track or have some catching up to do. Your financial advisor will review all of your investments, policies, assets, savings, and more. It can be helpful to know ahead of time what to expect during your retirement-needs analysis. Here are questions that will need to be answered.

How Long Do You Expect To Be Retired?

It is impossible to predict how long we are going to live. However, you can let your financial advisor know how old you’ll be when you retire. You can also share whether you’re in good general health, or if you have potentially life-threatening health conditions. You may decide to share a bit about your family history.

If, for example, you’re generally healthy and your family tends to live well into their 80s or 90s, be sure to share that with your advisor. Determining how long you are likely to live with a reduced income can significantly impact your strategy for the next five years. This is especially true if you’re planning to retire relatively young.

Do You Expect Your Current Expenses to Change?

Depending upon the age you retire, you may be responsible for paying for all or most of your health insurance after retirement. Likewise, if your plans for retirement include dreams of extensive travel, you need to be sure your advisor is aware of potential increases in spending on the horizon. On the other hand, if you expect to downsize from a larger home into a less expensive condo or move to a state with a lower cost of living, be sure to share that information.

Do You Have a Plan for Long-Term Care?

Planning for long-term medical care is something every individual should consider. Studies show that approximately 70% of adults who live past 65 will need some form of long-term care. This may include minimal help, such as a weekly visit from a home health care professional, or it may require full residential care. Medicare does not cover long-term care, and Medicaid is only available to those with limited savings and assets. If you haven’t yet planned for this possibility, it’s time to look at options that may be available.

How Are Your Accounts Performing?

Five years before you retire, you’ll need to clearly understand how your investment accounts are performing. If your 401k is consistently increasing, for example, you’ll want your advisor to run some best-case and worst-case scenarios of where you should be in five years. If certain investments are underperforming, it is best to know now, so you can make changes.

How Will Your Income Change?

Most people will experience a drastic change in income upon retirement. However, others may not see a severe reduction. Pensions, public employee retirement plans, annuities, severance packages, and others may come close to matching your current income. You’ll also need to determine when you’ll begin collecting Social Security and account for any mandatory distribution requirements. IRAs, for example, will require minimum distributions once you hit age 72.

Do You Want to Leave an Inheritance or Gift to Charity?

You’ll also want to discuss your goals for leaving an inheritance for loved ones. If you wish to leave your children a significant inheritance, you’ll need to talk with your financial advisor about how to preserve wealth for your heirs. If it is important to you to donate to charity upon your death, notify your advisor. You may need to draw up estate plans that gift money from an IRA to charitable organizations.

How Much Will You Have Saved in Total? 

Once you’ve estimated how your expenses may change and reasonable predictions for the growth of your accounts, (plus any expected inheritance, real estate sales, pensions, etc.), you’ll have a clear picture of how much money you will have in five years. This figure is incredibly important as it will allow you to see what changes you need to make during the last five years of your career. You may not need to change anything. But all too often, people find that they need to make quite a few changes to retire comfortably. This is where the services of an investment advisor can be of significant value.

How Much Money Do You Need for Retirement?

You do not have to know how much money you need for retirement. You may also be surprised to find that you think you need more or less than you actually will need. Your financial advisor can help you arrive at this figure by factoring in your answers to the preceding questions.  Although some people choose to spend more money in retirement, most people tend to spend less. According to the Bureau of Labor Statistics, average retired households spend 25% less than working households. If this figure holds true for you, you’ll need to ensure you have 75% of your current income to sustain a comparable lifestyle in retirement. Financial advisors generally recommend that you plan to live on 80% of preretirement income.

Changes You May Need to Make in the 5 Years Before Retirement

If you’re on track to living the life of your dreams in your retirement years, your advisor may tell you that no changes are necessary. However, if you cannot meet your goals in five years with your current strategy, talk with your advisor about the most effective ways to accomplish your savings goals. A partial but not an exhaustive list of ways you may reach your goals include:
Consider Reallocation of Assets

It’s typically prudent to maintain a middle-of-the-road investment strategy as you near retirement. You don’t want to be overly aggressive with stocks that can lead to losses. However, you don’t want to be too conservative and miss out on opportunities for beneficial returns. Your financial advisor may make recommendations to change investments as the economy changes.
Postpone Retirement By a Few Years

The best way to reach your savings goal may require you to postpone retirement for a couple of years. If you’re in good health and don’t have specific plans for how you’ll spend your days, it may be worth it to continue working a few extra years. Just a few additional years may be the difference between financial strain and financial freedom.
Continue to Work Part-Time 

Depending on your industry, you may opt to reduce your hours and responsibilities by transitioning to part-time work if your employer offers it. In other industries, countless individuals transition into consulting work after retiring. It is smart to consider options for continuing to earn money after retiring from your full-time job if you’re falling short of your retirement goals.
Can You Contribute More to Retirement Accounts over the Next 5 Years?

The best solution may be as simple as aggressive contributions to retirement accounts in the final years of your career. Looking through your budget to find expenses that can be cut or delayed may help make up for a shortage. You may consider delaying buying a new car, postponing the purchase of a vacation home, or downsizing into a smaller home before you retire.

• Consider Delaying Social Security, Pension, and Retirement Plans

If you’d planned to begin collecting Social Security in your 60s, consider if you can postpone until you’re 70. Doing so will increase the amount of your benefit check each month. Check the requirements for distributions from all employer-sponsored retirement accounts as well. Postponing distributions may help make retirement more comfortable.

Schedule a Retirement Planning Consultation at ICC

The Investment Counsel Company (ICC) provides retirement planning services at any stage of life.  If you have $1,000,000 or more in investable assets, contact us today to learn more about our investment management services. 702-871-8510.

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