Retirement Planning Falls Into Five Phases
By Hook Law Center
Phase 1: Accumulation
This phase may begin as early as your first job, or at least your first full-time job. If your employer offers a retirement plan such as a 401(k) or 403(b), sign up for it right away. Because the accumulation phase lasts a long time, it can be tempting to postpone retirement account contributions. But time works in your favor to compound investment proceeds and grow your nest egg.
Does your employer offer contribution matching? If so, you should make every effort to contribute the amount required to maximize this matching. Otherwise, you are leaving money on the table. Beyond that, try to raise your contributions as close as possible to the legal maximum. For 2013, that is $17,500 for most workers.
Phase II: Pre-Retirement
This phase begins about 15 years before retirement, or around the age of 50. Speak with a benefits specialist or a financial advisor to understand how you will convert your savings into an income stream. Now that you are getting closer to retirement age, are your savings invested in volatile assets? Is it time to begin to adopt a more conservative mix? Learn more about the Social Security and Medicare options available, and consider whether to purchase long-term care insurance now, while your premiums may still be low.
Phase III: Early Retirement
This phase lasts from the beginning of retirement through age 70 and entails three tasks. First you must assess how well savings are working for you. Consider whether you need to adjust your investment strategy and/or living expenses. Next, with the help of a financial advisor, make new projections of income and expenses. Professionals recommend projecting cash flow to age 100 to be safe. Finally, take into account minimum distribution requirements, which begin at age 70 regardless of whether you have retired.
Phase IV: Mid-Retirement
Phase IV begins at age 70 and lasts for as long as you are high-functioning and able-bodied. At this point, you should plan and discuss with your family a desired course of action should your health deteriorate. The loss of abilities or mental clarity often happen gradually over time. It may be difficult, but you should discuss with your loved ones what will happen if you lose your ability for self-care.
Phase V: Late Retirement
At some point, everyone’s health takes a turn for the worse and recovery becomes unlikely. Self-care becomes impossible. No one knows when this time will come, which can delay action. But if you put forth the required effort in the previous phases, this transition can go smoothly and in fact be life-affirming.