Why Your Spend Down Retirement Phase Requires Planning

“The late ’50s to early ’60s is the perfect time to increase your savings, build out your stake in safe money products, and re-evaluate your portfolio.”

Many investors, especially those within ten years of retirement, look for guidance as they near the spend-down stages of their lives. Conventional financial advisors tend to focus on wealth accumulation rather than spend-down. While they may be fantastic at helping pre-retirees accumulate sizeable nest eggs, these planners often lack the specialized skills and training necessary to help seniors design sensible withdrawal strategies.

Americans hurtling toward retirement worry about their plans and whether they’ll have enough money to last them for twenty or thirty years after they stop getting paychecks. Those near retirement age are also concerned about knowing exactly how much they can remove from their savings each year without putting themselves at risk. In an era when yields have plummeted, and inflation is high, portfolio structure is not very intuitive. It’s challenging to formulate a plan to deliver the money necessary for you to have a stress-free, peaceful retirement. How can you prepare for the retirement spending period of your life?

Although it can be difficult to estimate your future needs accurately, it is still possible to formulate a plan that will deliver the money necessary for you to have a stress-free, peaceful retirement. Some steps you can take to fund that plan include:

Finding ways to earn more money while still employed. Investing in yourself while still employed can increase your earnings power. You don’t have to spend a ton of money to do so, either. You can keep up with the latest technology, volunteer for cross-training, or learn new skills. Not only could this position you for a promotion and a higher salary, but it might also keep you from getting downsized or laid off.

Another idea worth considering is getting a side job or gig to bring in extra money you can use to beef up your retirement accounts.

Plan your Social Security strategy long before you get a reminder from the government. Staying in your current position longer has many positive benefits, especially if you like or can tolerate where you are. For one thing, you can delay applying for Social Security benefits. Waiting to draw your Social Security payments enlarges your benefits when you eventually do file. Choosing the right age to begin Social Security benefits is one of the most critical planning decisions you will ever make.

Review your insurance needs.

Shortly before retiring, it’s wise to do an insurance review. You will see which personal liability, property and casualty, and health insurance coverages need to be beefed up, which can be reduced or eliminated. You’ll be surprised at how much money you could save by making tweaks to your insurance. Five to seven years before leaving your job is an ideal time to look at potential long-term care (LTC) insurance needs, as premiums for LTC normally become prohibitively expensive by the time you are 60.

Review your portfolio and look for gaps.

Typically, financial advisors apply conventional wisdom when advising clients how best to spend their assets in retirement. However, recommendations such as drawing down your assets in sequential order, then accessing tax-deferred accounts, and finally spending tax-exempt assets, may not be effective for everyone. It’s prudent to have your portfolio reviewed by one or more experts who are not your primary financial planners.

The Bottom Line: The spend-down phase of your financial life comes with a unique set of challenges and potential risks. For this reason, the conventional planning model you used to save your nest egg will not serve you well once you no longer get a paycheck. Advanced and thorough income and retirement planning will help you discover the best ways to maintain your lifestyle once you no longer work.

SD, LC