Nearing Retirement? We’re All Different and All the Same.

Nearing Retirement? We’re All Different and All the Same.

November 3, 2023


Nearing Retirement? We’re All Different and All the Same.

November 3, 2023

Everyone’s financial situation is unique. At Old Peak Finance, we see that every day. But we have worked with enough clients to know there are similarities. We see this particularly when clients approach one of the most stressful financial transitions in their lives: retirement.

Here are widely shared experiences – not by everyone, but by many:

  • Getting more financially conservative. No matter how willing you have been to own stock and other “risk” investments while working, you will feel less risk-loving as you near and enter retirement.
  • Searching for income. Annuities and similar products promising a guaranteed monthly payment will be attractive. Regardless of the cost, you’re likely to think about an annuity. The fact that the cost is often high and hidden may not deter you. (Note: it should.)
  • Underestimating longevity. You may underestimate your remaining lifespan. As a result, you could be tempted to take your Social Security benefit sooner than you should, accepting a lower monthly payout. If you live past your mid-80s, you’ll regret that decision.
  • Tracking your portfolio more closely. The ups and downs of the stock market and the predictions of various pundits will become more interesting to you. Most dangerously, you may entertain the notion you can time the market – trying to sell when you feel the market is high with the plan to buy back after a fall. Often, people who adopt this strategy buy back at a higher price than they achieved in the sale.
  • Talking about finances with others. You will be more likely to discuss your financial questions with your friends and neighbors. These issues seem more important than before, and you have more free time. Some of your friends will appear more knowledgeable than you are. Some will recount stories of uncanny investing success. None will recount a failure.
  • Becoming a bigger target for salespeople. Your mailbox and email inbox will overflow with reachouts from salespeople. They will offer free dinners to learn about annuities. They will offer guidance about investing, Medicare supplemental and Advantage plans, the right time to take your Social Security benefits, and how to easily roll over your company 401k into an IRA. You will be invited to visit retirement communities. You will receive offers to buy property on a calm lake or in a stunning mountain resort near your home. Usually, there will be very few lots remaining.

In short, as you near and enter retirement, you will be vulnerable.

How do you fight the urge to make decisions you may regret in 10 or 20 years?

It’s easy, and it’s hard:

  1. Create a financial plan, preferably at least five years before you retire, and update it as you get close to the day. The plan should include these key elements:
    1. How much you will spend annually in retirement.
    2. How much income you will have in retirement.
    3. Assumptions about the returns your investments will generate.
    4. Scenarios that represent your biggest financial risks – perhaps dying a few years before retirement or having an extended stay in nursing care late in life.
    5. Assumptions about the returns your investments will generate.
  2. In your plan, make sure you also consider these additional items:
    1. What you can do to minimize your lifetime tax bill.
    2. Insurance, including long-term care insurance.
    3. Estate planning – last will, trust, and powers of attorney.
  3. When you create your financial plan, understand and account for the very normal changes in psyche you will experience when you lose your paycheck. If you are happy owning 70% of stock today, consider lowering that gradually as you near retirement so that you will be taking less risk when you have lost the cushion of a monthly paycheck.
  4. Now the hardest part: sticking to your plan.

We believe the best way to stick to your plan is as follows:

  • Write it down, keep it, and refer to it. Use it as a guide.
  • Don’t change it without consulting a disinterested third party. It could be a financial planner like Old Peak with no product to sell, so they have no reason to push a product not in your interest. It could be a relative or close friend you trust with knowledge of personal finance. It could be your spouse, although they are far from disinterested.
  • Don’t change it without mulling the change for a reasonable amount of time. We suggest a cooling-off period of at least 2-3 weeks.
  • Don’t change it without a good reason. There are plenty of good reasons. For example, you received an unexpected inheritance or won’t get an expected inheritance. After doing research, you have decided on in-home care in your final years instead of moving to a retirement community. Those are good reasons to amend your plan. What’s not a good reason: Deciding the stock market won’t recover from a recent fall.

Getting financially ready for retirement should start with a robust, comprehensive financial plan. There is no better protection.

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This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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