The word retirement tends to be a catch-all word for the light at the end of the tunnel. A time to relax and enjoy the things in life that matter the most to you, like family, travel, and leisure activities. After all, you’ve put in the time and earned it.
But retirement is more than just a word and more than just a time for seniors to kick back and relax; it is the period of your life for which you have been planning and saving for decades.
When helping our Semmax clients to save and prepare to retire diligently, our Certified Financial Planners™ sometimes find it helps to break your retirement planning down into phases, each having distinct characteristics and action items.
1. Accumulation
This first phase may be the longest for people and starts when you begin your time in the workplace and commence saving for the day you retire. It can be tough to save early as you are just starting your career and maybe paying off student loans, buying your first home, or starting a family. However, every little bit helps and is important because people in this phase have time. Small contributions can grow substantially over time.
Starting Early
For those with a 401(k) or other retirement savings account offered by their employer, sign up and start contributing whatever you can. Make this a priority and start with a goal of contributing at least up to the amount matched by your employer, if applicable. After all, a company match is free money! Set a goal of reaching the point where you can put away close to 10 percent of your income. As a rule of thumb, if you can do this and invest the money appropriately, you should be on your way to retire securely.
For those who are self-employed or work for companies that lack a 401(k) option, talk with a qualified financial planner about opening a Roth and/or traditional individual retirement account (IRA) for your retirement savings.
Remember, it is never too early to envision what you want for your retirement and saving to achieve those goals.
2. Pre-Retirement
The pre-retirement phase typically begins around age 50 or about 15 years from retirement, whichever comes first. This is still part of the Accumulation phase, so you want to be sure that your savings rate is sufficient. There are also other retirement planning aspects to consider at this stage.
Prepare Your Projections
This is a critical time to be talking with an experienced and qualified financial planner who can prepare retirement projections for you. These projections help to determine if you are on track or lagging with your retirement savings. Unfortunately, we do not have a crystal ball, but having some idea of where you stand at this point is better than having no idea at all.
This is also the time to begin educating yourself about how Social Security and Medicare benefits work. You will also have to consider long-term care insurance to cover any assistance you may need, as Medicare does not cover that.
Where will you retire? This is also the time to discuss with your spouse, partner, and loved ones where you would like to live during retirement. Think about what will be the most important to you when you retire.
3. Early Retirement
The time between your last day in the workforce until you reach your early 70s may be considered Early Retirement.
Adjustments and Decisions
You will likely adjust your budget during this phase based on your decisions about where to live, etc. It is also the first time you’ll begin drawing income from your retirement accounts to help you pay the bills. For many people, the thought of reversing the process from putting money into your retirement savings to taking money out can be a big adjustment. Your financial advisor will guide you to ensure your distributions are reasonable without jeopardizing your long-term financial security and that you are using your savings in the most tax-efficient way possible.
You’ll also need to make decisions about health insurance in this phase, such as Medicare and medical insurance supplements.
4. Mid-Retirement
Mid-retirement starts at 70 years old and extends to whatever length of time you can still safely live independently. This period can also vary significantly from one person to another based mainly on health, genes, and lifestyle.
Also, in this phase, tax and estate planning become increasingly important. For example, if you have built up substantial savings in tax-deferred retirement accounts, such as IRAs and 401(k)s, this might dictate changes to other parts of your income and investment management plans. But, again, your financial advisor, in conjunction with a CPA, can ensure you are doing this efficiently.
To Downsize or Not to Downsize?
This is the most important time to start thinking about where you would like to live as you get older. In addition, this is a good time to discuss with your family members what is most important to you, particularly if your health is declining.
At this age, many people choose to downsize, move closer to family, or begin considering the low-maintenance lifestyle offered by a retirement community. If you plan to stay in your home, start earnestly exploring and specify the choices you want your loved ones to make when your health declines. Since it is impossible to know exactly what healthcare needs or challenges will arise in the future, it is vital to consider and plan for various scenarios.
If you are considering a retirement community, make sure you know what distinguishes one type from another. It’s also important to understand what types of supportive services and healthcare are available to you if needed in the future.
5. Late Retirement
If seniors’ health declines to the point that they need extensive help to care for themselves daily, and it is unlikely that their health status will improve, they have entered the Late Retirement phase.
In theory, if you have followed the planning steps above, including having discussions with family and making wise housing choices, the challenges of this phase will be more manageable than without planning—focused on implementing previously determined options.
Are You On Track?
Longer lifespans, which can result in extended long-term care needs, mean that you must be more proactive when it comes to planning for the later phases of retirement. Unfortunately, this is often a part of retirement planning that families overlook. Contact Semmax today and have a Certified Financial Planner™ review your retirement strategy, to ensure you are on track to have the retirement you have dreamed of and planned for.
The information contained herein is for educational purposes only. It is not intended to provide, and should not be relied on for, any tax, legal or investment advice. You are advised to seek the advice of a qualified professional prior to making any decision based on any specific information contained herein.
Insurance Products guarantees are subject to the financial strength and claims‐paying ability of the issuing company, and may be subject to restrictions, limitations or early withdrawal fees. Annuities are not FDIC insured.
Links are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the website to which you are linking.
