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The 5 Phases of Pre-Retirement

Retirement is one of the most important life events you will experience, and getting it right takes wise planning. With a sound intellectual framework, and some assistance from a qualified professional, you can help ensure that you are ready to retire when the day comes.

Retirement preparation can be broken down into five phases, with each phase having its own unique strategy. Regardless of which phase you currently fit into, make sure you have completed the tasks in the previous category before moving on to the next. Here are the key aspects to carry out during the five phases of retirement.

Phase 1: 30 Years Before Retirement

Many people skip this step because retirement seems so far away, and with bills, a mortgage, and kids, saving for this distant period of life seems less important. However, the first step is usually the most important in any strategy, and retirement planning is certainly no exception.

When you’re 30 years away from your planned commencement of retirement, you want to make sure you have some tax-advantaged accounts open and you’re contributing money to them annually. If your employer offers a company match, that’s a 100% return on your contributions. You’ll want to contribute the maximum to that account. An IRA will allow you to save even more every year; and it offers tax breaks like an employer’s plan.

Phase 2: 20 Years Before Retirement  

When you get to your 20-year milestone, be sure to review your retirement accounts and verify that you’re saving enough each month. You’ll want to figure the amount you’ll need when retirement starts and then calculate how much you need to save each month to reach that level. A financial professional comes in handy here.

This phase is also a good time to start looking over other financial vehicles that could be of use during retirement. These include life insurance, disability insurance, and long-term care insurance.

Phase 3: 10 Years Before Retirement

When you get to this phase, it’s time to consider catch-up contributions. These are additional retirement account contributions the IRS allows (starting at age 50). As with regular contributions, catch-up funds receive special tax treatment.

With a qualified estate lawyer or financial planner, you should draw up an estate plan, which will include a last will and testament. To circumvent probate, you can open transfer-on-death brokerage accounts and payable-on-death bank accounts.

Phase three is also a good time to review your tax situation as it pertains to retirement planning. If you started saving money in the first stage with a traditional account, but now you’re making more money and you think you’ll continue making more money during retirement, you may want to consider switching to a Roth account, which allows for tax-free withdrawals.

Phase 4: 5 Years Before Retirement

In the fourth phase, you need to begin thinking about what you want out of retirement. It can help to create a list of your requirements and preferences. Requirements are “must-haves,” like monthly income for living comfortably. Preferences are aspirations that you would like to achieve, but are lower on the list of priorities. This might include major vacations, building education savings accounts for grandchildren, or moving to a warmer climate.

Phase 5: 1 Year Before Retirement

When you are 1 year from retirement, you’ll want to review your current plan and make sure everything is ready. Do you have health insurance? If you’re going to lose health insurance from your employer, you’ll need to make sure you have signed up for Medicare or have some other alternative.

Do you have enough savings in your retirement accounts? If not, consider delaying retirement for another year or two. While this may not be an ideal choice, it may be a way around an otherwise difficult problem.

On a personal level, what will you do with your time in retirement? Now is a good time to take a look at how you might expand on your hobbies, interests, recreation, and charitable endeavors.

From beginning to end, the tax, legal, and financial aspects of retirement planning are complicated for just about anyone. If you need any assistance along the way, please contact us to see how we can help.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of The Oechsli Institute, Jay Ferguson and Keith Hill and not necessarily those of Raymond James.

You should discuss any tax or legal matters with the appropriate professional.

This material was prepared by The Oechsli Institute, an independent third party, for financial advisor use.

Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.