By Michael Vaughn, CFP®
Retirement might seem like a distant dream, something we plan and save for but often overlook the different phases that come with it. Just as you progressed from a newbie in your career to an accomplished professional, your retirement journey spans various stages, each with its own challenges and joys. Think of it like chapters in a book, unfolding gradually over time. From your pre-retirement years in your 50s and beyond, each stage presents unique decisions and experiences.
Let’s dive into what to expect at each phase of your retirement planning 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money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early.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 Currently In?
No matter where you are in life, having a seasoned financial advisor by your side can make all the difference. These experienced professionals can offer unbiased guidance on every retirement planning stage that includes income, investments, wealth preservation, and transfer strategies, in addition to addressing your financial questions and concerns.
At Pinnacle Family Advisors, we’re committed to offering support, education, and guidance to each client. We’re here to evaluate your options and craft a personalized financial plan that aligns with your goals.
Ready to start the conversation? Reach out to schedule your complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
About Michael
Michael Vaughn is a CERTIFIED FINANCIAL PLANNER™ professional and Vice President at Pinnacle Family Advisors (PFA) with 23 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® certification in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.