Retirement Readiness: Preparing for the Three Phases

Phase One of retirement is often called the “go-go” phase of retirement and includes activities such as travelling, checking off bucket list items, pursing hobbies, volunteering, spending time with family and friends, and so on. Considerations for this phase may be determining:

  • Anticipated household expenses

  • Additional discretionary, lifestyle expenses that reflect inflation

  • When and how to maximize Social Security benefits

  • What additional healthcare coverage is needed, outside of Medicare benefits

  • How to tax-effectively handle required minimum distributions withdrawn from retirement plans

  • Your vision for the type of housing and care you want for you and your spouse

Phase Two of retirement usually means a slow-down as adventure and activity could be more limited due to health issues. Considerations for this phase entail:

  • Monitoring of income supply and spending habits

  • A reassessment of how your assets (retirement accounts, etc.) are allocated to ensure they are appropriately diversified for your age and circumstances

  • An update of your estate planning documents, ensuring beneficiary and account information are correct and readily accessible

  • Any plans for you and your spouse to “age in place” or remain in your home

During Phase Three of retirement, you may be more sedentary as you deal with the realities that come with advanced age. Considerations for this phase include:

  • Health concerns, mobility issues, home upkeep and other factors that may require a move to a new housing situation

  • Transportation options if driving is no longer a possibility

  • Coping with the reality of losing your spouse and living alone

  • Rising healthcare expenses that tend to mount during this stage

Your intentions to pass along certain assets to loved ones and/or an organization are specified in writing in legal estate planning documents

SOURCE: Frank Paré, CFP®, 2018 President Financial Planning Association® (FPA®)

Even the longest and most difficult ventures have a starting point. Retirement readiness generally requires an early start, followed by continued, consistent saving.

Today’s workers have a median tenure of just 5 years, and most will have 10, 11, 12 or more employers. Other studies show that workers currently aged 50, have had an average of 11.9 different employers, and that most workers ages 58 to 62 have changed employers since their fiftieth birthday.

Because all employers do not sponsor plans, and because many work in a “gig” or on-demand role, preparing for retirement requires workers (that’s you) to prioritize saving for retirement.      

To improve your odds of success, follow these tips: 

  • Save early, save often. You don’t need to know your destination to start. If you are not eligible for an employer-sponsored plan, save in an IRA. IRAs have been available since 1982 and are a more than adequate, tax-favored, retirement savings vehicle for almost all workers.

  • Pay yourself first. Contribute to your employer-sponsored plan when eligible. If ineligible, save regularly using direct deposit, and, as necessary, set up a scheduled electronic funds transfer.

  • Investment expertise helps but is not required. Consider using a target date fund, a diversified fund whose asset allocation becomes more conservative as you approach retirement.

  • Don’t go it alone. Get help from Uncle Sam in the form of tax-preferred savings on retirement accounts and save enough to get the maximum employer match. If your employer offers a 401(k) and a Health-Savings-Account-qualifying health plan, make sure you maximize the tax preferences and employer support from both plans.

  • Pre-retirement liquidity. Plan loans, done right, allow you to save more than you believe you can afford to earmark for retirement. However, hardship withdrawals and pre-retirement cash outs may ensure retirement poverty.

  • To Roth or not to Roth? After-tax Roth accounts may be best for those just getting started — your marginal tax bracket may never be lower than it is today.

  • Work together. For married couples, preparation may be a lot easier if you both save in every available employer-sponsored plan and IRA.

Approximately ten-thousand Baby Boomers will reach age 65 today, and this month, tens of thousands will successfully retire. Almost all workers who have retirement as a financial priority.