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Video Transcript

Today I want to share some financial planning tips for those who are in their later career stage — around ten years or less from retirement. And the goal in this phase is to make sure you’re doing all that you can to set yourself up for success. This is the time that you are starting to more clearly envision what your retirement might look like. And you believe you have been doing everything right to be in a good position for when that time comes. But this phase is a good time to actually check in on how you’re doing and put some concrete numbers around how large of a retirement nest egg that you’ll need to live comfortably. You’ll want to formulate a savings plan for your remaining working years. And what each person needs to accumulate is going to be different based on a number of factors such as your retirement age, longevity expectations, investment returns, how much you plan to spend, and your sources of income.

You can begin by getting a handle on your current spending as a starting point, and from there, factor in future expenses, keeping in mind that a mortgage may be paid off, or you are no longer paying college tuition. But we might see those expenses replaced with higher health care costs. Different phases of retirement might have inherently different spending levels. For instance, we’ve noticed an arc for spending where, when we first retire, we’re in our Go-Go years, traveling and more active, spending more. Followed by the Slow-Go years, perhaps more family time and a slower pace. And the No-Go years, where we might be far less active, but may start to see an uptick in expenses due to health care related costs.

Now once you have a handle on how much you plan to spend in retirement, your William Blair advisor can help you figure out how to close the gap through savings and investment. Most experts recommend saving at least 15% of your gross pay each year. However, this late career phase is often your highest earning years, and you should consider contributing the maximum amounts possible. If your company offers a retirement plan matching contribution, at a bare minimum, you should contribute at least enough to get that company match, because that is essentially free money. You might also want to review your savings strategy from an income tax standpoint. You get an up-front tax benefit when you make pre-tax contributions to a traditional 401(k) or IRA because these contributions lower your current taxable income. But if you expect to be in a higher tax bracket once you are in retirement, you might want to consider Roth 401(k) or Roth IRA contributions where you trade the up-front tax benefit for tax free withdrawals in the future. If you find that your retirement account balances are coming up short, consider making catch-up contributions. In the year you turn 50, you can start to put in higher amounts to your employer plans and IRAs beyond the annual limits These extra “catch-up” contributions can be helpful for those who want to get in that extra amount of savings. Because everything you can get into these plans while you are still working is going to help to grow your assets available for retirement spending.

If you have access to a Health Savings Account (or HSA), these plans are actually another form of retirement savings. People tend to think of these as a fund for current medical expenses, which they are, but you can treat your HSA as a long-term investment account. These vehicles are triple tax advantaged, you get a tax deduction for making a contribution, tax free growth, and tax-free distributions when used for medical expenses. There are annual limits on how much you can put into an HSA, but catch-up contributions for those age 55 and over are available.

This is also a good time to check in on your Social Security Benefits. Your retirement benefit is based on your Social Security Full Retirement Age, which is now age 67 for most pre-retirees. This is the age that you will get 100% of your earned benefit. But if you begin benefits early, say at age 62, the amount will be reduced, and if you delay benefits up to age 70, it will be increased. So take the time to review a copy of your benefits report, which you can get on the Social Security website.

If you haven’t prepared or revisited your estate planning documents, this is the time to have that buttoned up. Wills and trusts will allow you to designate how you would like your estate assets to transfer. And Powers of Attorney will allow the persons you designate to make financial or health care decisions if you are unable to do so. Also, be sure that your beneficiary designations on your retirement accounts and life insurance policies are up to date.

And finally, you will also want to make sure that you have a current and long-term plan for your asset allocation. Many of us have been taught that as we’re approaching retirement, we should invest more conservatively, but remember that you may have multiple decades ahead of you to invest after you retire. So it’s important to maintain exposure to equities in your portfolio. This is going to help you stay ahead of inflation and keep your portfolio assets lasting longer term.

The late career stage is an important time to have that financial plan check-in with your advisor and financial planner. We can help you to get your arms around your current financial situation and retirement goals so that you can feel confident that everything is on track.