Life is full of surprises. Things don’t always go according to plan. For example, you hope to retire in the next 5 years. But then something unexpected happens …
- You’re downsized out of your job.
- You’re offered early retirement.
- Your health takes a sudden turn for the worse.
- Or someone else’s health fails, and you need to care for them.
Whatever the reason is, many times, you may be forced to retire a lot sooner than you expected! You’re ill-prepared, and now you’re left scrambling to pick up the pieces.
According to a 2024 Retirement Confidence Survey, seven in 10 retirees stopped working before they turned 65. Overall, about half said they stopped working before they had expected, with the majority blaming reasons out of their control. Whether a job loss, a serious health issue or you retire because you can afford to, would you be prepared to retire if you had to?
The following are five steps to help you prepare for your retirement now, no matter the circumstances that lead to hanging up your work boots.
- It all starts with a comprehensive financial plan.
Not many people have a complete financial plan. A complete financial plan looks at where you want to be and how you’re going to get there. By not having one, this is one of the fastest ways to get yourself into trouble. Without a plan, you’re just winging it and potentially setting yourself up for a big financial fall. And if you don’t have this plan set up well in advance, you could be putting yourself at even more risk.
It’s important to note that a plan isn’t about just one thing. It’s about many things working together, including social security benefits, income planning, income taxes, healthcare planning, long-term care, Medicare, diversification, inflation, and estate planning.
One thing that many people also tend to forget is that a financial plan is a living, breathing thing – it’s not static. It’s not a set it and forget it, and it can change frequently. It’s critical you have ongoing meetings with your financial advisor to update your plan. Saving for retirement is great, but it’s what you do with that money that really counts. How are you going to turn your savings into dependable income?
- Have a tax-efficient investment strategy for retirement.
This is one of the most overlooked areas of investing. Yet, it could have a profound impact on your money, your investments and ultimately, your lifestyle in retirement. Taxes are probably going to be your largest expense in retirement, so it’s critical to get in front of this. You have more control over how much tax you pay in retirement – more so in retirement than any other time of your life. - Have a diversified strategy to generate income in retirement.
Successful retirements are not built on assets or the amount of money you’ve saved… they’re built on your ability to generate income in retirement. Stock market highs and fluctuating bond and interest rates are making it more challenging than ever before to generate income in retirement today. Couple this with the fact that we’re living longer than ever before, and you have potentially a perfect storm of events. If you’re struck with an unexpected retirement, your income stream will be more important to you than ever before.
It’s important to note that longevity plays a key role in retirement planning today, with people living longer and longer lives than ever before. If you are forced into retirement sooner than expected, that could make problems worse if you don’t already have a plan to generate income in retirement.
- Ensure your asset allocation/diversification matches your appetite for risk.
Overwhelmingly, when people think about their money and their appetite for risk, what they want may not match what’s on paper. This is a trouble spot for many investors– they are either taking on far more risk than they realize or are taking on more risk than they need to at this stage of their life. Others may actually not be taking enough risk. This is especially important to review in the wake of an early retirement.
Asset allocation/balance of assets is one of the critical pillars of retirement planning.
When discussing asset allocation, we talk a lot about the downside risk. But there’s also an upside reward potential in the long term with more risk. Ultimately, investment is a balancing act of risk versus reward. We all want to make money and have growth, but how much loss are we willing to take? How much risk can we afford to take? We have to always be balancing those.
- Don’t take your Social Security benefits at face value.
Generating income starts with Social Security. This is the one benefit that almost all of us get that is guaranteed by the government not to be outlived. This is where everything starts. Social Security remains one of the critical pillars of retirement planning. It is the foundation of your income plan. If you are forced to retire earlier than expected, you might feel pressured to claim your benefits right away. This could be a huge mistake. Or not. But the only way to know for sure is with a Social Security analysis because everyone’s situation is different. You shouldn’t create an income plan without having a full Social Security analysis.
The questions as to how or when to claim your benefits is more complicated than you think. Your decision could also cause you to forfeit additional benefits that are rightfully yours. So, the money you were counting on to help support you in retirement if you make the wrong decision, could be a fraction of what you thought it was going to be.
Take the time to sit down with your financial advisor or schedule a complimentary review with one of our advisors to evaluate your current financial plan. You want to make sure that you are prepared for retirement whenever and however that may happen.
