By Paul Bullock

Retirement planning looks different depending on what stage of life you’re in. As you progress in your life and your career, it’s important that you make sure your retirement plan keeps pace and experiences growth.

From the beginning of your career through the end, here’s what you need to know for each stage. 

Stage 1: Accumulation

During your 20s and early 30s retirement seems so far off, that some of us fail to plan at all. Plus at this time in your career, income is typically lower and you are simply trying to build up assets as much as possible. It’s important at this stage to maximize your contributions and leave your retirement funds alone. Resist the urge to take an early withdrawal and think about exploring other retirement accounts outside of the ones your employer offers.

You also may find yourself leaving one job and going to the next. What do you do with the retirement plan from your prior employer? Understanding transfer strategies is important at this stage since you may encounter this a few times in your career. 

Stage 2: Growth

From your mid-30s to your mid-50s are the years when most are raising children and working full time. Saving for the future becomes more of a priority and concern, but since you still have some years ahead of retirement, you may be able to tolerate investment strategies that tend toward aggressive. Make sure you are maximizing your 401(k) plan contributions and/or IRA contributions. This may also be a time when you might consider real-estate investments. Working with a knowledgeable financial advisor can help you navigate the pros and cons of these types of ventures.

Stage 3: High-Earning Years

During your 50s, you will likely launch your kids into adulthood and experience your highest earning years, which gives you more to work with. But that extra money you aren’t used to having can result in “lifestyle creep,” where your expenses grow along with your pay raises. (1) These increased expenses may not always be nonessential either, as you might become responsible for increased housing costs, education expenses, healthcare costs, and even eldercare costs. 

Despite these financial strains, the inflow of new money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early. Rather, these should be the years where you maximize your retirement plan contributions. If you are over 50, you can make catch-up contributions to beef up your nest egg. 

If you find yourself in this phase, it’s time to get realistic about the near future. Do you know what you will do next? How will you make it a reality? For example, will you be able to keep up with your current expenses while on a fixed income? Be sure to test out different budgets to make sure your finances are set. Do you want to volunteer or start an encore career? Start mapping out the details now. If you do not have a set plan for the next chapter of life, a phased retirement may give you more of an opportunity to figure it out.

Usually, this is the time to dial down risk in your portfolio. Market downturns have a greater impact on your long-term success as you don’t have the same time to recover. This is what is called the sequence of negative return risk. You should speak with an advisor to make sure you have the correct mix of investments that will provide cash flow in the short term and growth in the long term. You also can’t afford to be too conservative as lower growth will be eroded by the rising cost of living.

Stage 4: Retirement

The first year or so of retirement is akin to a “honeymoon phase.” You have the time and perhaps the money to pursue all kinds of dreams, so the key is not to spend wildly. Lifestyle creep also affects new retirees, and free time often means more chances to spend money. 

When it comes to your investments, your portfolio looks very different than it did when you were in your 20s and 30s. Bond funds and fixed income may make up a larger portion of your investments. Your focus is on generating cash flow to live on and preserving what you’ve worked so hard to save. However, you should still consider exposure to the stock market. If you retire at age 65, there is a good chance you have a 30-plus-year retirement ahead of you. As such, you should consider keeping exposure to stock funds for their growth potential. 

Up until now, you’ve probably received healthcare coverage from your employer. When you retire, it’s a new ball game. Medicare eligibility begins at age 65. You have plenty of choices for your Medicare plan, such as original Medicare coverage, prescription drug plans, and supplemental insurance. Your premium costs will depend on your coverage choice and your income. Medicare can be complicated and overwhelming, so if you are in this chapter, start researching now to make informed choices. 

Which Stage Are You In?

It can be extremely beneficial to partner with an experienced financial professional no matter which stage you’re in. Having an objective advisor who can answer your questions about income, investments, wealth protection, and wealth transfer is paramount to a successful retirement plan. Learn more today: schedule a no-obligation introductory meeting or reach out to me at paul@wellingtoninvestmentadvisors.com or (812) 333-0874 to get started. Be sure to check out what some of our clients say about working with our team at Wellington Investment Advisors to learn more about how we can help you.

About Paul

Paul Bullock is CEO of Wellington Investment Advisors, an independent, boutique fiduciary firm serving pre-retirees and university faculty across Indiana. With over 32 years of financial experience, Paul is committed to building long-term relationships through thoughtful, personalized investment advice and guidance. He focuses on a disciplined tactical asset allocation approach to money management through a strong understanding of economic and market conditions and strives to build trust with clients by providing sound guidance. Paul understands the hard work his clients have put in to arrive at where they are today and wants to see them succeed in their goals for the future. Paul graduated from the University of Texas with an MBA, as well as a bachelor’s degree in finance, and has been dedicated to assisting clients with their financial needs ever since. When he is not working, Paul enjoys time with his family and is also an avid equestrian polo player who helps raise money for over 18 different charities through his playing. To learn more about Paul, connect with him on LinkedIn.

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(1) https://www.experian.com/blogs/ask-experian/what-is-lifestyle-creep/