Mapping Out the 4 Stages of Retirement Planning

Years ago when you mentioned the concept of retirement, visions of a long and relaxing stretch of time after your career came to mind.

Most people envisioned having a 20 to 30-year time span filled with activities such as traveling to exotic locations, leisurely days of relaxation, and recreation and time with grandchildren. The possibility of long-term care was usually the only concerning issue in retirement.

Times have certainly changed!

Today, the concept of retirement has taken on a new meaning. The cost of living has become very expensive and those who would like to enjoy their mature years are finding that it is becoming less and less financially feasible. In order to realize their dreams, retirees are finding that simply living off of social security and a savings account is not enough. For many Americans, retirement today can be broken down into four stages:

Pre-retirement
Early retirement
Full retirement
Final retirement

Pre-Retirement Stage

Pre-retirement is that time period when you begin to take a look at slowing down and begin to plan your life after your career. This is the time you should ask yourself how much money you will need and how you can make the most of your retirement.

As a starting point, most experts suggest that you will not need your full earnings to carry you through retirement but a high percentage of it. The percentage is higher if you earn less, and can be lower if you earn more.

Although everyone has varying retirement income planning concerns, one of the keys to success is to prepare an active budget of your expected expenses in retirement. You can then review how much you have saved and invested to meet your unique situation.

Remember, most people in retirement pare back certain expenses like commuting costs and clothes that are required for work. However, some incur additional expenses such as health care.

It is crucial in this stage that you map out what you want your retirement to look like and how and where you expect to live, so that you can begin to plan for life after your career has ended. This time period is also helpful to think about setting some goals you can stick to and monitor your cash flow.

Early Retirement Stage

During the early stage of retirement, many people tend to still have a lot of energy and enthusiasm and therefore can focus on enjoying physical sports (like golf and tennis) and traveling.

During this stage, it is important to have a plan for cash flow. It can be very likely that your expenses will be higher in these early years due to potentially more extensive travel and activities.

It is not unusual today for many individuals in this early stage to work on a part-time basis. In addition to traditional work, many people in this stage also still work on boards of trustees and volunteer at not-for-profit organizations.

The increase in life expectancy can affect your decisions during this stage. Also, many people during this stage need to replace or supplement corporate benefits such as life and health insurance and, if you work part time, possibly disability insurance.

The challenges of this early retirement stage are not just financial. They can also be about filling time. Many retired clients find themselves looking for work often part time, simply out of boredom.

Although early retirement may sound appealing, it is important to think through the financial and non-financial implications for making this decision. It is essential that during this period that you hold a full review of your estate plan so any unexpected situations do not interrupt the comfort of you or your loved ones.

Full Retirement Stage

This next stage is the middle of your retirement cycle. By now, you have hopefully realized your travel dreams and fulfilled many of the goals you had planned for in your retirement.

Although you may be in good health, many people during this stage are more likely to decide to slow down and may possibly find more enjoyment in activities that are less fatiguing and slower paced. The hassles of traveling don’t sound as tolerable. Instead, local events and the pursuit of hobbies that are less physically tasking sound more appealing.

During this stage, many people belong to groups or clubs that meet regularly and provide social interaction. Your expenses may actually be lower than in the early retirement stage if your activities (such as traveling) have minimized.

In today’s low interest rate environment, many experts are recommending that withdrawals from retirement plans be more conservative than those taken during periods of higher interest rates. This is why we like to sit with clients to help determine an appropriate withdrawal schedule.

Final Retirement Stage

During the final years of retirement, you may find yourself battling the physical and mental challenges of old age.

Some retirees move out of their homes and into assisted care facilities or even nursing homes. Many times medical expenses, including prescription drugs, take up a significant share of your monthly income. You can even become restricted in your activities due to physical limitations.

Regardless of your age or which stage you are in or approaching, here are some important things that you need to constantly review and consider:

Realize that Your Cash Flow Needs Can Be Different for Each Retirement Stage

Your early stage and final stage have the potential to have the most expenses. Expenses can usually be lower in the full or pre-retirement stage.

Understand that People Are Living Longer

It is imperative to monitor and review your investment choices on a regular basis to give yourself the best possibility of meeting the cash flow needs you will require throughout each stage of retirement.

Rebalance Your Portfolios to Meet Your Needs and Lifestyle Changes

It is equally important to rebalance your investment portfolios to reflect the various changing priorities and living patterns as you go through each of these retirement stages. Long-term

Constantly Monitor Your Cash Distributions from Your Retirement Savings

We have experienced a significant decline in interest rates over the last decade and that can affect your portfolio. In this low interest rate environment, it is even more essential that you have a strategy for taking distributions from your portfolio.

Plan for a Comfortable Retirement with Chatterton & Associates

Wherever you are during your retirement journey, Chatterton & Associates can help. Our team of financial planners, tax professionals, and estate attorneys work under one roof to help guide our clients and their loved ones to reaching a secure financial future.

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional.

A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 ½. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that rebalancing investments may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability.