Are you planning to retire in the next 3-5 years? What to consider today

It may take decades over the course of a career to save for retirement, but there is a small and defined window of time leading up to one’s golden years that is exceptionally critical when it comes to planning. I often work with my clients three to five years before their planned retirement to fine-tune their plan, reviewing everything from financial expectations, likely lifestyle changes or decisions, and often overlooked non-financial considerations.

Having a map or outline defined in the years before retirement will ultimately provide comfort and financial and emotional stability for the future. Below is a rundown of significant elements to reflect on in the last few years before retirement:

How will the current market environment affect your future?

While inflation and a potential recession may be on the mind of many today, it is important to remain disciplined in an investment approach. Keep a long-term perspective and don’t let current market noise distract or influence significant portfolio changes, as this could negatively impact your future retirement and investment goals.

At best, the current market environment can offer an opportunity for rebalancing. If a pre-retired investor is now underweight equities due to the market decline, he should consider allocating more bonds to equities to return to the target allocation.

Another element to proactively plan on is building a larger stack of money that can be withdrawn from early retirement. Once someone starts spending from their retirement wallet, I recommend having six to 12 months of cash spending on upcoming spending. In the current market environment, if someone has the financial means while having a steady stream of income, take out these future funds which could be leveraged later in life.

What are your lifestyle expectations for retirement?

Being financially prepared to retire is one thing, but being emotionally and mentally ready is another. Retirement can be a considerable amount of time in one’s life – 20 to 30 years or even longer. How that time is spent is important.

I often see people who retire and ask themselves, “What now?” Not only can this be financial damage (frivolous and disorganized expenses for travel or hobbies), but it can leave a person unsatisfied during this stage of life.

In the years leading up to retirement, determine what your ideal lifestyle should be. How do you want to spend your days? What is important to keep yourself mentally stimulated? Will your spouse / partner join you? Three to five years before retirement, if time permits, consider this window as a dress rehearsal. For example, if volunteering is important, join an organization or two ahead of time to make sure the activity and time spent align with your future retirement goals.

Is your spouse on the same page?

Recently, a husband and wife client decided to retire at the same time, even though one partner was nearly 10 years from the traditional retirement age. The logic? It was imperative for this couple to experience this new phase of life together.

While this scenario may not work for everyone, think about the relationship dynamics years before planning to leave the workforce. For some, having a spouse continues in their career and stays in that “9 to 5” mindset works; it does not upset the family balance that was at stake in previous years. For others, it could stimulate a range of emotions that otherwise would not have been thought of in advance.

Of equal importance is the discussion of long-term lifestyle plans between partners. After retirement, will you intentionally move closer to your children and grandchildren, or will you move to a more tax-advantageous state? Will you travel abroad or buy a holiday home? Think about retirement goals and how they look both individually and as a couple – mapping this perceived lifestyle in advance will help both partners stay on the same page to enjoy a successful retirement.

Early retirement modeling is obviously subject to evolution. But, even having a vague interpretation of how an individual or couple want to spend this time and how they intend to afford retirement, they are often much more success oriented than those without a plan.

Senior Financial Advisor, Vanguard

Julie Virta, CFP®, CFA, CTFA is a Senior Financial Advisor with Vanguard Personal Advisor Services. She specializes in creating customized investment and financial planning solutions for her clients and is particularly experienced in comprehensive wealth management and wealth planning for multigenerational families. A graduate of Boston College, Virta has over 25 years of industry experience and is a member of the CFA Society of Philadelphia and the Boston College Alumni Association.

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