By Daniel Staiger, CFP®, CRPC®
Retirement can seem like this vague event that’s too far off into the future to worry about. You can plan your retirement, save for retirement, and most people even spend their days dreaming about it, but we often don’t pay attention to the nuances of each stage of retirement. Just like how you started your career as an entry-level rookie and moved your way up to being a respected professional, you are likely going to change throughout your 20-plus years in retirement.
The journey to and through retirement occurs gradually, like successive chapters in a book. Each chapter has its own obstacles, celebrations, and decisions to be made. Starting with your pre-retirement years in your 50s, here’s what you need to know for each stage of your retirement.
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.[1] 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money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early.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.
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.
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.
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.
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.
Regardless of your current life stage, it’s always beneficial to partner with an experienced financial professional—someone who can offer objective advice and answer your questions about income, investments, wealth protection, and wealth transfer. At Matarazzo Staiger Wealth Management, we are dedicated to professionally supporting, educating, and providing informed direction to each and every client, and we’d love to help evaluate your options and create a financial plan that will carry you through every life phase. Schedule a no-obligation introductory meeting by emailing me at daniel.staiger@raymondjames.com or calling (631) 319-6777.
Daniel Staiger is a partner at Matarazzo Staiger Wealth Management and Financial Advisor with Raymond James Financial Services. Matarazzo Staiger Wealth Management is an Independent Practice and our team is committed to helping families, pre-retirees, and union employees build a sense of security and confidence around their financial future. With more than 10 years of experience, Daniel is dedicated to providing trusted advice and tailored solutions that help his clients realize their financial potential. He is known for building relationships with his clients so he can better understand their values and the goals they want to pursue. As a CERTIFIED FINANCIAL PLANNER™ and Chartered Retirement Planning Counselor℠ professional, Daniel specializes in serving union employees, such as tradespeople and teachers, with well-thought-out guidance and a personal touch. When he’s not working, Daniel spends his time pursuing interests such as guitar, volleyball, golf, and cooking. He is also an active member of his church. To learn more about Daniel, connect with him on LinkedIn.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
[1]https://www.experian.com/blogs/ask-experian/what-is-lifestyle-creep/
