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December 29, 2022

Pre-Retirement: 5 Considerations to Think About
Alli Thomas

According to Investopedia, retirement has four phases: pre-retirement, early retirement, middle retirement, and late retirement. Today we’ll talk about the pre-retirement years. Generally, these are considered the final 10 to 15 working years of your career – your early 50s to mid-60s. Pre-retirement is also when you enter the “preservation” financial phase of life.

This is the time to start forming a concrete vision for your retirement (while maintaining some flexibility) and start making a retirement plan that considers long-term concerns such as longevity.

Key Change to Retirement Accounts

One key change happens once you hit 50 and enter pre-retirement: you become eligible to start making “catch-up contributions” to your employer-sponsored retirement plan. In 2023, the maximum contribution you can make to your 401(k), 403(b), or 457 plan (which includes regular and catch-up contributions) is $30,000. If you’re over 50 and have an IRA, you can contribute up to $7,500 this year.

What to Ask Yourself During Pre-Retirement?

While there are many aspects of retirement planning that come into focus and become more urgent during pre-retirement, here are five key questions to ask yourself as you start thinking about this key phase of life:

1. When would you like to retire?

Is it possible to retire early? Or do you see yourself working until your late 60s or even beyond? Opinions differ on the best course of action, but your expected retirement date will be a big factor in how long your retirement savings will last (and how much money you’ll be able to withdraw each year).

Some experts say that working to age 70 is best (because you will maximize your Social Security benefit). But others say that doing so isn’t realistic–or even possible, in some cases.

2. Where do you envision living after you retire?

Do you plan on selling your home and downsizingmoving abroad, relocating across the country to be closer to kids or other family, spending half the year in a warmer climate, or do you think you’ll stay put? Knowing where you’d like to live in retirement will help inform your investment decisions now.

3. How is the overall state of your health?

For most retirees, healthcare expenses represent the largest line item on their budgets. If you require more medical care, you’ll need to ensure you can afford it.

If you plan to retire early, remember that Medicare won’t kick in until you turn 65. You’ll need to have a plan for buying health insurance for the gap in coverage. If you receive high-quality health insurance coverage from your employer, it might make sense to delay retirement.

It is also important to plan for the potential need for long-term care expenses, even if you’re in good health during pre-retirement.

4. How much could your Social Security benefits be?

Until they’re very close to retiring, many people don’t understand exactly how Social Security works, what their benefits will be, or how to start receiving payments. One option is to make an appointment with your local Social Security office to familiarize yourself with the system.

Because social security calculates your benefit amount based on your annual earnings for a maximum of 35 years, if your income increases during pre-retirement, you may significantly increase your eventual benefit if you retire later.

5. Do you have a financial plan?

Even though there seems to be an unlimited amount of free information on the internet about retirement planning, the truth is that it’s all one-size-fits-all. The retirement system is complex, and there are countless financial products that could help increase your retirement income or reduce your income taxes, including life insurance, annuities, trusts, and more. A private sector worker that relies mainly on tax-advantaged accounts such as 401(k) and IRAs for their retirement savings will have different financial planning needs than people with access to additional retirement benefits such as federal employees, public safety workers, and military personnel.

Working with a financial advisor well before your expected retirement date is a great way to take advantage of all of their expertise and all of the financial tools that are available. An advisor can also help you figure out what your retirement income goals are, and will work with you to achieve them by creating a personalized financial plan matched to your unique financial situation.

If you’re a decade or so away from retiring, now is the time to solidify your plans. Click here to set up a no-cost, no-obligation meeting with an advisor who can help you figure out if you’re on track–and where there may be potential shortfalls.

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