Planning for retirement is a lot like a race, and the final lap could be the most critical.
Planning for retirement is a lot like a race. And, if you’re a fan of motorsports, you know the final lap can sometimes be the most critical. Races have been won and lost by the right moves, or sometimes just small mistakes in that final lap. When it comes to retirement, we want you to avoid a potential retirement “crash”, and instead see that checkered flag as you cross the finish line into retirement.
Many people don’t realize there are several phases of their life when it comes to investing. The first phase is the accumulation years. This is approximately ages 20 to your early 50’s. And your main focus of your investments is to save as much money as you can, and hope that money grows, so you can one day feel confident enough to retire. During this time, you might see the stock markets go up – which is a positive because you might see your nest egg grow.
You might also see the market dip during this time. This is not as concerning because you’re still contributing into your investments – even in the lows of the market. Through dollar cost averaging, you typically will still see your investments grow over time as the market rises and falls. During your accumulation years, having the appropriate amount of risk, while being diligent to contribute, can help put you into a position to one day, hopefully, be able to retire.
However, there comes a point for all of us when we move from the accumulation years – which can be a long stretch of time – just like a long race – into the final lap. And, the final lap represents the last five to ten years before you retire. So, this might be in your mid-50’s, to mid-60’s. This is a time where mistakes can really cost you. There is no time for do-overs.
It’s when market corrections can have a tremendous impact on our ability to retire, or retire successfully. For instance, if the market were to go down 20-30% in the final lap before retirement, would you have time to recover? One mistake we see families make, is that they don’t begin to reposition themselves in the final lap. Instead, they assume they’ll get into retirement, and then make the changes they need to make when it comes to risk in their portfolio. And, for a lot of families, it can be too late.
A good example of that are people who had hoped to retire in 1999. We saw the market take a tremendous hit, and those individuals had to delay their retirements up to five, even seven years. We saw that happen again to people who planned on retiring in 2008. The market dropped significantly, and we saw families having to continue to work just to get back to where they were. We always hear people say, “I’m never going to let that happen again.”
But, look where we are now… Sitting atop a bull market. And, of course, we like when the market is doing well. But, what happens if the stock market drops?
The plan that got you to retirement may not be the same plan you should use to get you through retirement. It’s important to adjust your risk BEFORE you get to retirement. You also need to think about setting up a comprehensive retirement income plan. And make sure you’re accounting for taxes, and how those could impact your retirement income and lifestyle. And, finally, planning for estate and legacy needs.
So, when you’re working, it’s all about growth. And, investing in the market, is a great way to accomplish that. But, keep in mind, that plan may need to change, as your goals and needs change. We always need our money growing, so there is a place for the market within a retirement plan. But providing predictable, sustainable, reliable income becomes the top priority when you reach the final lap before the finish line of retirement. So, maybe you’re wondering if it’s time to start lowering your risk. At Fullerton Financial Planning, we believe if you’re in that final lap – the five to ten years from retirement, it’s time to reach out to start planning.
