Financial advisors often talk about retirement—but what about what comes before retirement? A lot of people are excited for the day they can clean out their desks, celebrate with their coworkers, and ride off into the proverbial sunset. But it takes a lot of careful planning to get there. That’s why pre-retirement investment strategies are critical in your financial plan.
Our team at True Blue Financial specializes in guiding individuals and families through the pre-retirement stage. It’s our goal—and our job— to get you to your retirement finish line with a plan that makes sense for your circumstances. In this blog, we’ll explore some pre-retirement investment strategies that can help set you up for the day you no longer have to go to work.
Understanding the Pre-Retirement Phase
The pre-retirement phase is the decade or so before an individual reaches retirement age. Some individuals decide to retire earlier or later, so your pre-retirement phase could be anywhere from your early 50s to mid-60s. When we refer to retirement age in this blog, we’ll be following the Social Security Administration’s age of retirement, which is 67 in most circumstances.
Pre-retirement is a vital time to begin setting firm goals for retirement and making sure your finances are in order. When individuals and families come into our office, a few things motivate them, including:
- Catch-up contributions: They know they need to start adding aggressively to their retirement accounts, but aren’t sure about the guidelines for catch-up contributions (more on those later.)
- Debt: They may still have considerable debt from purchasing a home or even from attending college. They don’t want debt to impede their ability to retire on time.
- Children attending college: College is a significant expense, and while parents want to support their children’s dreams and goals, they don’t want to significantly delay retirement or spend more than they have.
- The death of a parent or family member: Individuals often lose their elderly parents during the pre-retirement phase. We’ve seen this act as a “wake-up call” for couples to shore up their financial and legal documents—especially if their parents did not prepare their finances well.
- Insurance: With the end of your working years also comes the end of employer-sponsored insurance plans. Individuals start to wonder what insurance they will need not only for health but also life and disability.
These are certainly unique challenges for pre-retirees, but they are not insurmountable. These are all opportunities to create an even stronger retirement plan using the right retirement strategies.
Let’s explore some of those strategies together.
The Basics of Retirement Investment Strategies
Your retirement accounts are long-term, wealth-building portfolios designed with the future in mind—not for short turnarounds or instant cash. That’s why creating or re-evaluating your strategy in the pre-retirement phase is important. That way, they can continue to work in your favor when you stop earning an income from work and start drawing from your investments.
Let’s look at some pre-retirement tips from our True Blue team designed to help strengthen your investment strategies before you retire.
Maximizing Your Money in Pre-Retirement
It’s certainly not too late to get the most out of your investments in your 50s and 60s, so long as you lay the groundwork before you officially retire. The more you can do in pre-retirement, the better! Here are a few ways you can maximize your money in pre-retirement—post-retirement you will thank you!
To maximize your money in pre-retirement, we recommend:
- Increasing contributions to your retirement accounts
- Reviewing your portfolio
- Rebalancing investments
- Paying down debt
Increase Contributions to Retirement Accounts
After the age of 50, you can increase contributions to your retirement accounts over the standard limit. As of 2024, you can contribute up to $1,000 over the annual IRA contribution limit, which is currently $7,000 for Roths and traditional IRAs. For workplace plans such as a 401(k), you can contribute $7,500 over the annual contribution limit, which is currently $23,000. We always encourage our clients to take advantage of catch-up contributions as they are able.
Review Your Portfolio
Sit down with your financial advisor and review your portfolio every year during the pre-retirement phase. Your financial advisor will be able to spot potential opportunities or blind spots in your current plan. They can help you consider multiple factors of your financial life, including debt, taxes, and insurance.
Rebalance Investments
Younger investors can handle more risk in their retirement accounts earlier in their careers. Your risk tolerance has probably changed since you first started contributing to a 401(k) or IRA. An investment advisor can help you adjust your investment mix to reflect your new time horizon and risk tolerance.
Pay Down Debt
Hone in on higher-interest debt from credit cards or other loans to reduce financial burdens in retirement—and therefore focus your pre-retirement budget on saving for your spending years. Some individuals and families also choose to refinance existing debt, such as their mortgage, to change their repayment timeline or lower their interest rate.
Financial Strategies for Confidence in Retirement
There’s no one-size-fits-all retirement strategy, but there are smart moves you can make now to increase your income in retirement. Pre-retirement is the perfect time to develop a strategy that carries you through to retirement—and that can be easily adjusted as your goals and life circumstances change.
Contribute to Roth IRAs
A Roth IRA offers tax deferral on any earnings in the account. A Roth IRA offers tax deferral on any earnings in the account and qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings before age 59 ½ or before the account has been opened for 5 years—whichever is later—may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Diversify Income Sources
When you diversify income sources, you can maintain a mix of taxable, tax-deferred, and tax-free accounts (like Roth IRAs). Once you’ve done this, you can work with your financial planner to create a withdrawal plan that is more tax-optimized.
Consider Annuities
For a guaranteed income stream, you may want to consider an annuity as part of your retirement portfolio. Annuities are more predictable than some other investment payouts and are usually a set amount. While you shouldn’t rely entirely on annuities, they can be a great addition to your retirement portfolio.
Asset Allocation
Work with your financial advisor to determine how your assets should be allocated. Based on your lifestyle, age, risk tolerance, and other factors, your advisor can help you allocate your money to asset classes beyond investments—such as stocks, bonds, mutual funds, ETFs, treasuries and more.
The Pre-Retirement Checklist
Still feeling overwhelmed about what to do in the pre-retirement stage? How about a checklist? We’ve compiled a list of recommended steps to take in pre-retirement so you can feel more confident about the financial road ahead.
Understand Your Financial Situation
Knowing your financial realities can help you set realistic goals. Do this by examining all of your investment accounts, even if they are from previous jobs, and taking stock of where your money is going and what it’s doing.
Create Retirement Goals
Based on your financial situation, create realistic, SMART goals for retirement. This is also your opportunity to brainstorm some stretch goals you can aspire to and work toward!
Set a Realistic Budget
Work with your financial advisor to determine how much you will need every month in retirement, taking into account everything from groceries to mortgage payments to “fun money.” When you have an idea of how much you’ll need, then you’ll know how to adjust your accounts to meet that budget.
Maximize Available Benefits
Research Social Security benefits and determine the best time to begin drawing from them. You can begin drawing as early as 62 years old, but you won’t receive full benefits until you reach full retirement age. If you wait to withdraw until the age of 70, your benefit amount will increase. Determining what’s right for you is important because in most cases any adjustment is permanent.
Establish an Emergency Fund
The unexpected always happens—even in retirement. If you don’t have an emergency fund in your earning years, you want one in your spending years. Start setting aside enough to cover about three months’ worth of expenses at a time—you’ll be glad you have it! An emergency fund can help you with minor emergencies like a car breakdown or major ones like a hospital stay or injury.
Settle Existing Liabilities
Some financial advisors will tell you that you should have zero debt going into retirement, but that isn’t always feasible. Focus on paying off high-interest debt first. And always make sure to pay any other bills, like car payments or mortgages, on time to avoid late payment penalties.
Determine Your Health Insurance
Health insurance can quickly get complicated in retirement. Some retirees are eligible for Medicare or Medicaid, but depending on your situation you might also want to consider private health insurance.
Create an Estate Plan
An estate plan can provide much-needed financial confidence for you and your family. Your goal is to not outlive your money—but what will happen to that money when you’re gone? Instead of risking it being tied up in probate court or inaccessible to your family, start creating an estate plan with a trusted attorney.
Manage Your Retirement Income Plan
Saving for retirement is one thing, but planning your withdrawals is another. Withdrawing can be an intricate puzzle—determining how to avoid tax penalties, not over- or underdrawing, and more. Your financial advisor knows the ins and outs of creating a plan that works with your accounts and is ready to help you create a strategy.
Talk with A Financial Advisor
All the things on this checklist can be discussed with your financial advisor. They want you to thrive in retirement, and they’ll help you take the right steps to create a plan that aligns with your goals, considers your financial situation, and strives to optimize every opportunity. If you don’t have a financial advisor yet, our team at True Blue is always available to help!
Leveraging True Blue Financial’s Expertise
Our team at True Blue Financial is well-equipped to help pre-retirees prepare for the day they can hang up their work badge and celebrate with their former coworkers. The last decade before retirement is critical for shoring up all your documents, creating new plans, and developing an actionable strategy.
The approach we take at True Blue integrates every aspect of your financial picture, including:
- Your financial status now and in retirement.
- The insurance you need to protect your family.
- Your annual tax planning—and planning for taxes in the future.
- Helping you maximize your benefits from Social Security.
A Pre-Retirement Investment Strategy for Retirement and Beyond
In this blog, we covered a few ways you can build a strong financial foundation in your pre-retirement years. Even small steps like re-examining your retirement accounts or increasing your contributions can make a big difference when you reach retirement age.
Even if you are well into the pre-retirement phase of life, it’s not too late to start making wise choices!
Our team at True Blue Financial has helped so many families find financial freedom through uncomplicated financial plans and clear communication. We create personalized plans for each of our clients, not cookie-cutter methods that might not work for you. If you have any questions and would like to talk to us, schedule a complimentary, no-obligation meeting with us today!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy or asset allocation assures success or protects against loss. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. Tax/accounting/CPA related services offered through True Blue Tax, LLC DBA True Blue Financial. True Blue Tax, LLC is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax/accounting/CPA related services.
