facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
4 Things You Need to Do Before You Retire Thumbnail

4 Things You Need to Do Before You Retire

Today on Market Vizion, we're going to talk about four things to do as you enter what we call the Retirement Red Zone.

The Retirement Red Zone is that last five to seven year period of time before you're planning to retire. This is where it is time to get some things under control and get yourself ready for retirement.

A quick note before we dive in - we tend to call retirement "financial independence". This is because retirement should be the point in your life where you have made enough good decisions with your money to spend the rest of your days living off your money instead of spending every day working for your money.

Sound good? Let's jump in.

Priority #1: Get a Grip on Your Debt

The first and most important step to prepare for financial independence is to manage your debt. This doesn't mean pay off every bit of debt. It's about getting it under control.

Especially now, it may be wise to use the low interest rate environment that we're in to restructure debt to low interest payments. It'll let you spread the debt out a little bit so that you're walking into retirement with a little bit lower debt load and lower strain on your monthly cashflow needs.

The first step is to get your debt under control and manage it well.

Priority #2: Get a Clear View of the Big Expenses

The second priority in your planning rests on the big ticket expenses on the horizon. We want to consider weddings, college, that second home – those kinds of things.

Planning starts with those priorities because you don't save for them overnight. It doesn't mean you have to have every penny saved, but be intentional within your financial plan. Know how much you plan on needing and when you think you'll need it.

Priority #3: Set Up a Budget with Realistic Margins

Once you have a grip on your debt and your big expenses in view, you can build a more realistic budget that will keep you on course to sustain your financial footing.

Now, this doesn't mean you necessarily have to track every penny. I've heard people use the envelope system and if that's for you, awesome. I personally have never been successful tracking my money that closely on a monthly basis.

The important thing here is that your budget needs to have margins. You don't want to walk into retirement expecting that in a perfect world. We might not admit it to ourselves, but sometimes our planning looks like, "I have enough money but as soon as something imperfect happens, the whole plan goes to hell in a hand basket."

Plan for debt. Plan for big expenses. And then budget for the unexpected.

Priority #4: Restructure Your Investment Portfolio

Now that you've got the basics covered – debt, big purchases, and buffer – we turn our attention to your portfolio. It's time to ask questions like:

  • "How much should I be taking and how much do I need?"
  • "What kind of investment vehicles provide the best tax advantages?"
  • "Where should my risk tolerance lead my portfolio?"

Personally, I find that you always want to have your investments be able to provide at least five years worth of your cash flow needs. The reason we use that as a benchmark is because when the market has typically gone off a cliff (i.e. 2000 and 2002, 1987, 2008, 2020) it usually the comes back in a little over two years

To be prepared, we want to see that 5 years worth of expenses coming from three different things.

  1. Cash on Hand: I'm not suggesting five years of cash on hand... that would be overly conservative. But the amount of money that you have cash on hand.
  2. Low-risk Investments: These are things that should not be exposed to the stock market or other kinds of risk volatility.
  3. Cashflow from your Investments: If you have bonds, they generate interest. If you have stocks, they generate dividends. If you have other kinds of investments, they generate some kind of cash flow.

What we want to be able to do is add up these three sources and see about five years’ worth of your expenses. Even though it only takes about 2 years on average for economic recoveries, we want to be more conservative than that and plan for five years.

What we want when the market takes a swan dive down is to put you in the power seat to be able to say, "Hey, I'm not going to sell assets when they're at depressed prices to meet my current cashflow needs. Why? Because I already have five years of cashflow figured out."

We want you to be in a position to control when you're selling assets within your portfolio and at what prices.  This means that when the market inevitably goes down through its normal volatility cycles, you’ll be able to take advantage of those dips. If I remember right, that's what grandma and grandpa said, secret to success in investing was to buy low, sell high, so when the market gives us those opportunities, we want you positioned to be able to take advantage. 

Even though you're not earning more and contributing anymore, we still want to have a plan within your portfolio to participate and capitalize on market volatility with these four things.

Taking the Next Step in Planning for Retirement

You've been preparing for retirement for most of your life, but if you still have concerns or a sense of uncertainty, it's helpful to find a partner familiar with the coming uncharted waters.

If you found this article helpful, let's have a conversation! We can help you gain a stronger sense of confidence as you near the finish line and launch into financial independence.

As always, we're here with perspective for the decisions ahead. Reach out any time!

Schedule a Call