The Four Phases of Your Retirement Journey Carmichael Hill

Retirement is a multi-stage process. The duration and the financial approach to each stage will vary for each individual, making it an intricate subject. However, dissecting it into separate stages can help you understand and execute a smart retirement strategy. In this piece, we will explore every stage of retirement and highlight significant financial events within each phase.

Phase 1: Before Retirement (Approximately Ages 50-62)

When you get to be about 50, you can start to estimate your savings and potential expenses. It won’t be perfect, but you’ll probably be able to get in the ballpark. At the age of 20, for comparison, envisioning your retirement may seem like a far-fetched idea. Even in your 30s or 40s, retirement still feels distant (and it is!) But this hazy and amorphous idea of a hard stop to work will begin to feel real in your 50s.

Crucial financial decisions await you in this decade. You become eligible for catch up contributions to retirement accounts. [1] For those who have kids, college costs and your decision as to whether to sign on for PLUS loans will have far reaching consequences. Critically, you will target a date that you want to stop working.

This is still a “grind it out” period, but one with a clear light at the end of the tunnel.

Phase 2: Starting Retirement (Approximately Ages 62-70)

This is the stage where your preparation meets real-world application. You will likely stop working or pare back your hours dramatically in this period. For the first time in your life, you will switch from contributing to retirement accounts to withdrawing from them. You’ll make stark changes to your investment accounts and portfolio to accommodate this.

You will switch from private healthcare to original Medicare or a Medicare advantage plan, and you will also have to decide when you’re going to start your Social Security benefits. You may make a major purchase decision in support of your retirement, like downsizing your home, purchasing a second home (Florida, maybe?), or perhaps getting an RV. Maybe you’ll gather the family and take everyone on a once-in-a-lifetime trip.

You may also make decisions about paying off the last of your debts or refinancing a mortgage. If you’re wise and plan well, you’ll also consider Roth conversions and charitable gifting strategies during this period.

This is by far the single-most important period for your retirement planning. You will make major financial decisions that cannot be undone or reversed, and making the right call can be the difference in potentially tens of thousands of dollars of additional assets.

Phase 3: Mid-Retirement (Approximately Ages 70-80)

This stage also comes with a few key financial changes. You’ll begin required minimum distributions at age 73 (or age 75 if you reach that age after 2033). This may bump you into a higher tax bracket depending on your circumstances. For many, this is also the period in which charitable contributions begin in earnest. You may elect to reduce your tax bill by donating some of the required distributions that you don’t strictly “need” for your own financial security.

Your health may change during this period, and that may impact your lifestyle and spending habits. The plan you made in phase two may well adjust for higher medical costs and fewer discretionary expenses. Your feeling of autonomy over the direction of your retirement may begin to erode.

Phase 4: Late Retirement (Ages 80+)

Legacy and estate planning concerns are front and center in late retirement. Ensuring you have clearly communicated your intentions and determined the line of succession for your assets is key to avoiding family infighting following your passing. More importantly, naming someone to have your power of attorney for financial decisions and another for healthcare decisions will greatly help your family to provide care for you when you can no longer care for yourself.

Each stage of your retirement comes with a different set of challenges and decisions that must be made, and tying it all together into a seamless and efficient plan is a challenge unto itself. If you’ve hit the point where you’d like some guidance or are simply tired of doing it yourself, then reach out and speak with us. There’s no cost for an introductory call. We’ve helped hundreds of clients over the last thirty years and can help you, too.

 

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