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Five Steps to Take When You're in the Retirement Red Zone

Michael Mechler CFP® CBEC®
February 24, 2022

You’ve spent your working life building toward retirement, creating your financial nest egg and anticipating a less stressful lifestyle. As you get into the retirement red zone — those last three to seven years before retirement — taking the five steps below may help you cross the goal line and enter retirement financially prepared to achieve your dreams.

 

1. Honestly evaluate income and expenses

Make an honest but conservative estimate of your projected retirement income. Make an honest, but aggressive estimate of your retirement expenses, remembering to factor in the potential impact of inflation as well as how living costs may change in retirement. This approach may allow for wiggle room in your expected retirement budget.

 

2. Outline your needs, wants and wishes

Think about things you must have in retirement, things you want to have and things you wouldn’t mind having if possible — and what each will cost. What goes into each category depends on your individual priorities. For some people, a 5,000 square foot home is a must, while for others, leaving a legacy might be a top priority.

One need for nearly everyone is an emergency fund. Natural disasters, health disasters or a recession are just a few times when emergency savings can be helpful. Keeping the money in a liquid form makes it easy to access when needed. For some people, a home equity line of credit or a brokerage account line of credit may be a sensible option.

 

5 Steps to Take When You're in the Retirement Red Zone

 

3. Get a complete financial picture

Ideally, this means gathering all your accounts into a place where you can easily view them. It can be helpful to understand what types of accounts you have, what each is designed to do, why you have that type versus an alternative, how each account is performing and where it’s held.

It’s not uncommon for people to accumulate numerous accounts over time. For example, one client had roughly 20 different investment accounts by age 40. In cases like this, consolidating some accounts may make sense, potentially making it easier to monitor, balance and manage tax efficiency of all an individual’s accounts.

 

4. Identify all income streams

It’s important to understand where retirement income will come from, and it can be particularly helpful to identify reliable or secure income sources. These are investment options that tend to be less market dependent and more stable than stocks. For some people, that includes pensions. For many people, Social Security will form a large portion of their retirement income and evaluating when to begin taking benefits is a critical decision.

For example, one client expected to have a good 401(k) income and relatively low expenses during retirement. Yet, when we ran some scenarios, he realized that his income would fall short if he retired at his preferred age of 62 or 63. But by waiting just a few years, his Social Security benefit would be enough to make up the short fall.

In addition, people may need to incorporate other income solutions, such as fixed interest securities, annuities, structured products, life insurance-based plans or rental income.

 

5. Evaluate insurance coverage

Insurance is designed to protect against the unforeseen, but overpaying or being underinsured can put your assets at risk. It’s generally a good idea to review all your insurance policies annually, particularly when you’re in the retirement red zone. Evaluate whether each policy’s coverage and terms are still appropriate for your needs.

For instance, a term life insurance policy purchased at age 30 may not make sense for the same person at age 60. Health insurance is an important coverage to consider as you approach retirement and, for people approaching age 65, it’s also helpful to begin learning about Medicare coverage and costs.

 

Last but not least

Couples should have open conversations and plan together as they may be entering the retirement red zone together or at different times. For instance, discussing individual visions of retirement, reviewing both spouse’s financial pictures, and understanding each other’s goals for retirement timelines and lifestyles may all help ensure a smooth transition to retirement for both spouses.

The retirement red zone is an important phase as you head closer to retirement. If you need assistance with any of the steps above or generally making sure you’re financially prepared for retirement, your Hancock Whitney Financial Advisor can help. Contact us today to schedule a personal, one-on-one discussion.

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The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.

This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.

Investment products and services, such as brokerage, advisory accounts, annuities, and insurance are offered through Hancock Whitney Investment Services, Inc., a registered broker/dealer, member FINRA/SIPC and an SEC-Registered Investment Advisor.

Hancock Whitney Bank offers other investment products, which may include asset management accounts, as part of its Wealth Management Services. Hancock Whitney Bank and Hancock Whitney Investment Services Inc. are both wholly owned subsidiaries of Hancock Whitney Corporation.

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