Have You Planned for Every Season of Retirement?

Spring: The Pre-Retirement Years

Your pre-retirement is roughly the decade leading up to the big day. You’ll be gearing up in this phase and planning for the rest of your life, and there are all kinds of questions regarding your finances you can ask yourself:

• What’s the status of your nest egg?
• What will you receive from a pension?
• Are you planning to start collecting Social Security at 62, or are you better off waiting until full retirement age (or beyond) to maximize your annual benefit?
• How much have you saved in your retirement plans like an IRA, 403(b) or 401(k), and how much will you need to withdraw monthly?
• Is your mortgage paid off? If not, how much do you owe and for how long do you need to make payments?
• Are your spending plans manageable on a more fixed income?

If you are running a business – especially with family! – now is a good time to create a succession plan, or to weigh the possibility of early retirement if you are working for a large employer. If you or your spouse plan to retire before being old enough to enroll in Medicare, you’ll want to think about your coverage for when your employee insurance expires. Your Baird Financial Advisor is an excellent resource for exploring all these options so that you know what is possible, what to expect and how flexible you can be for those unforeseen life changes.

Summer: The “Go-Go” Years

Finally, the time comes to move from accumulating assets for retirement to drawing on them in retirement – and of course, to have fun! You might be traveling, visiting friends and family, exploring new hobbies, volunteering or giving back to your community, but the hope is you have a lot of life left to live, so don’t count on your activity level staying the same.

For most retirees, your Go-Go Years will be the most active and allow you to take the greatest advantage of your newfound freedom and time. It’s what we most look forward to about retirement – but it’s here you have to be your most vigilant. While the point is to enjoy everything you’ve earned and all that you’ve built, if left unchecked you can inadvertently steal from your future. With often limited income fortifying your nest egg, it’s critical your spending reflects your new financial circumstances.

You might have heard of the “four percent rule,” which suggests that a retirement portfolio comprising 60% equities and 40% fixed income assets should last over 30 years if you withdraw only 4% of the total savings when you begin retirement, and then adjust the amount annually for inflation. It’s important to remember that this “rule” isn’t immutable. The best course of action is to work with your Baird Financial Advisor to build a sustainable spending plan, but the concept of managing the amount drawn down from your savings and assets is to ensure your hard-earned wealth lasts. Be sure to track your spending against your budget and adjust as necessary!

Autumn: The “Slow-Go” Years

It is inevitable that we will slow down as we age, which can be a good thing. Perhaps you’ll want to travel a little less. You might want to downsize your home. You might want to go down to just one car. You might not need as large a life insurance policy. While you might have grandchildren still to dote on, perhaps their parents won’t be so reliant on you for money and support. You’ll probably be a little less active and able to enjoy some well-earned rest. You could see your overall monthly expenses diminish.

Keep in mind, however, that healthcare costs often increase in retirement. These expenses tend to grow at a faster rate than other factors, which makes inflation a bigger concern when minding your nest egg. A healthy couple can expect to spend approximately 70% of their Social Security benefits on medical costs. Health considerations and their subsequent expenses are difficult to determine ahead of time, but are often more expensive than people anticipate, so be mindful of health considerations as it relates to your assets.

At this stage of your life, you might want to revisit your will and other estate planning documents to see if they still reflect your wishes – or to create an estate plan if you haven’t already. This is an excellent time to give someone you trust power of attorney as it relates to your finances or healthcare that kicks in should you need help making decisions.

Delaying the start of Social Security allows your benefit to grow, but that growth stops at age 70 (other than inflation adjustments), so be sure to start benefits by then.  At 73 (75 for those born in 1960 or later), you’ll begin to take required minimum distributions from certain types of retirement accounts. This is a good time to revisit your portfolio asset allocation, if you aren’t in an investment that does so automatically. Your Baird Financial Advisor will be able to guide you as you navigate this part of the road, including recommending other experts to help craft the best bespoke plans for your needs.

Winter: The “No-Go” Years

If your overall expenditures went down in autumn, they will likely rise again in winter. While we think of this period as a quiet life of established routine and simple comfort, costs will often ramp up considerably, largely due to health considerations.

Medicare will cover a lot of what you’ll need, but there will still be copays, deductibles and care that may not be covered. Medicare savings programs and supplemental insurance plans are helpful to explore if you’re feeling pinched.

In late retirement, many people move to an assisted living facility or independent retirement community. Even if you don’t, eventually there may be a need for a nursing home or even hospice care, or for employing an in-home healthcare professional. If it’s not these things, it will be something like them, and it’ll serve you well to be mindful of this during your initial planning and subsequent readjustments.

Your Baird Financial Advisor will be able to assist you in reevaluating your savings and plans at this stage, as you give thought to what you want to spend during your remaining years and what you wish to leave to loved ones or charitable causes.

The X Factor

While it’s helpful to mentally place your retirement years into the buckets above, there aren’t exact age ranges assigned to them: The truth is, it’s going to be different for everyone. Your “biological age” rarely matches up with your numerical age, and that can be uncomfortable to think about. Genetics, environment and lifestyle all put a spin on the curveball of life, and so you’ll have to feel it out as you go. And it’s worth keeping in mind that one event can lead to another and quickly compound into a speed run through these phases – hopefully not, but it is best to be prepared.

When planning for your own retirement, it’s essential you map out not only the pastimes you intend to pursue but also how your lifestyle will evolve over time. And of course, your Baird Financial Advisor can guide you through realistic financial decisions that make the most of this wonderful time