Whether you view retirement as a finish line or starting line, one thing’s for sure: You don’t want the line moving as you approach. According to Billy Lanter, a fiduciary investment adviser at Unified Trust Co., the last five years before retirement come with some specific to-do’s to make sure all goes as planned:
- Lower your risk capacity.
- Prepare your portfolio for the distribution phase.
- Map out several retirement scenarios.
- Make post-career plans.
- Have a cushion.
“Most people theoretically know they should be taking less risk as they get closer to retirement, but that’s a vague concept,” he explained. To make it more tangible, it’s important to determine your risk capacity about five years before retirement — not in terms of how much risk you’re willing to take, but in terms of how much is appropriate for your goals and the market.
“Low interest rates for the last several years have driven many retirees to take on more equity risk in hopes of achieving better returns,” Lanter added. “Don’t forget to monitor your risk capacity as return expectations change.”
Risk capacity is just one aspect of the broader transition from the “accumulation” phase of investing to the “distribution” phase. In a nutshell, all the assets you’ve accumulated over the years will actually get paid out in retirement. It’s important to have a picture of how this will work. “Review what you can expect to receive from guaranteed income sources, such as Social Security, pension income, annuities and so on,” Lanter said. “Then review strategies regarding how you can maximize these benefits.”
This, too, should be a dynamic planning process. In fact, Zaneilia Harris, president of Harris Wealth Group, recommends clients have several plans prepared, showing different spending patterns, for example. The freedom to travel is one perk of retirement, she says, but not all clients have budgeted for its cost.
Of course, not all lifestyle planning is necessarily financial. Both Harris and Lanter emphasized the importance of making post-career life plans. “The idea of sleeping in and golf every day only goes so far,” Lanter said. “An active lifestyle and mental engagement is an essential part of a successful retirement plan.”
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