Retirement in America has changed radically over the last few decades; years ago you expected to work most of your life for a single, large employer, then you would count on a pension from that employer. “Retirement planning” was figuring out how to use your new-found free time. Today, however, it’s more likely that you will be living in retirement on money that you saved yourself while calculating rates of return and deciphering tax rules.
This self-funded retirement constitutes a shift of responsibility. To help those who are beginning to plan for retirement, or those who just want to learn ahead of time, here are the five phases of retirement planning, including key aspects that should to be carried out during each phase.
Phase 1: Accumulation
This period begins when you enter the workforce and begin to set aside funds for later in life, and ends when you actually retire. If your employer offers 401(k), 403(b), or 457(b) plans, sign up and contribute the maximum amount allowed. The “new normal” requires retirement savings rates for most Americans to exceed 10 per cent. If you’re self-employed, look over your plan to see if you’re shortchanging yourself on Social Security to reap tax reductions, and if you are, consider re-working your plan.
Phase 2: Pre-Retirement
This occurs during the final years of Phase 1: Accumulation and should begin either when you reach 50 years of age or when you are 15 years away from retirement, whichever happens first. Now is the time to get your plan in place; make sure your finances are lined up correctly for the day your retire so nothing is left to chance. If the company you work for has a benefits specialist, schedule an appointment to become informed about the different ways you can convert your employer retirement savings into a stream of income or an IRA (Individual Retirement Account). Consider using “scenario planning” and start learning about Social Security and your options for receiving retirement benefits. Familiarize yourself with the basics of Medicare, including Medicaid.
Phase 3: Early-Retirement
This phase lasts from the day you retire until you turn 70. (For those who do not plan to retire until well into their 70s, some tasks in this phase may occur later.) An important purpose of this phase is to create a clear communication channel with your family: information can be shared, questions can be discussed, and decisions can be made in a calm and supportive way. It’s also the time to evaluate how well your finances are working now that you have started to use your retirement savings. Fine-tune your income and expense projections, remembering to take into consideration how you will meet minimum distribution requirements from your tax-deferred accounts.
Phase 4: Mid-Retirement
This begins at age 70 and lasts as long as your high-functioning and able-bodied. Despite your good health, begin looking at what steps you would want your family to take if your condition declines significantly. In most cases, your ability to make all your own decisions, care for yourself, engage with the world, and manage your affairs does not disappear in a split second. It takes courage to dive into a conversation about giving up and transferring control.
Phase 5: Late-Retirement
This phase begins when your health has taken a turn for the worse and it is not likely for it being fully restored and you require significant help to function from day to day. The hope for this phase, is that by this point all the planning you have done in prior years will make this transition as manageable and life-affirming as possible.
For assistance in retirement planning, it would be helpful to hire a qualified elder law attorney. Contact Adam Tobin to meet with a knowledgeable Massachusetts elder attorney, and receive advice and tips to make your retirement planning a smooth process.