Why retirement planning should start before you retire

Retirement planning has changed significantly over the years. Longer life expectancies, market volatility, inflation, taxes and rising healthcare costs can make the transition from working to retirement more complicated than it once was.

For people who are several years away from retirement, that may be exactly why it is worth taking a closer look at their financial plan now.

Financial advisor Stewart Willis explained on the Asset Preservation Hour that waiting until the final months before retirement can mean missing opportunities to make adjustments.

“When someone comes to our team and says, ‘Oh, I’m a few years away from retirement, I’d really like some help, but I don’t think there’s anything you can do for me yet,’” Willis said, “not true.”

Risk can change as retirement gets closer

Someone who is 61, for example, may still have several years of working and saving ahead. But those years can also represent an important period for reviewing how retirement accounts are invested.

Market downturns can have a different impact on someone approaching retirement than they did earlier in their career. A major loss shortly before retirement can affect both the timing of retirement and the amount available to generate income.

At the same time, being too conservative can create its own challenge. If investments fail to keep pace with inflation, purchasing power can decline over time.

Willis said the goal is to understand how much risk is appropriate rather than simply reacting to market conditions.

“The first thing we do is make sure your portfolio matches your comfort level with risk,” Willis said. “Then what we do is we take a look at how you’re paying and what you’re paying inside your portfolio.”

A portfolio review can also uncover investment fees and other costs that may affect long-term growth.

Taxes deserve attention before retirement

Taxes are another part of retirement planning that can benefit from advance preparation.

Many workers accumulate significant savings in traditional 401(k)s and IRAs, where contributions may receive tax benefits during their working years. Withdrawals generally become taxable income later.

For some individuals, a Roth strategy or Roth conversion may be worth considering. Roth accounts use after-tax contributions and qualified withdrawals can be tax-free. Whether a conversion makes sense depends on an individual’s circumstances, including income, tax bracket and retirement timeline.

“Everybody’s situation is very, very different,” Willis said.

That is why tax planning should be considered throughout the year, rather than only when tax returns are being prepared.

Retirement income has to last

Accumulating retirement savings is only part of the equation. The next question is how those assets will support a person’s lifestyle over what could be decades.

Social Security, investment accounts, pensions, insurance products and other income sources may all play a role. Healthcare and longevity also need to be considered when determining how much income a retirement plan may need to provide.

“Prepare for the worst, but hope for the best,” Willis said. “Hope is great, but we need to prepare.”

Longer lives can be one of retirement’s greatest opportunities, but they can also require savings to stretch further. A comprehensive plan can help connect investments, taxes, income and estate planning rather than treating each piece as a separate decision.

Start before the retirement date

Retirement planning does not necessarily begin when the last paycheck arrives. For people who are a few years away, reviewing their retirement accounts, investment risk, tax strategy and potential sources of income can provide an opportunity to make adjustments while there is still time.

Asset Preservation Wealth & Tax works with individuals to develop retirement strategies based on their financial circumstances and goals.

Receive a free portfolio review online or call 602-449-0146 for more information.

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