How to Build a Timeline for Your Retirement

There are key ages and important steps you don’t want to miss on your way to retirement. In this video, we walk you through a timeline for your retirement. This helps you plan everything out in a tax efficient way. Read the transcript below!

Video Transcript

Do you know if you can retire? Hi, I’m Michelle, a financial advisor here at Financial Design Studio, where we work with senior executives as they prepare to retire in a tax-efficient way. In today’s video, I wanna walk you through the retirement timeline of planning decisions you need to make. And it all starts 10 years before your retirement date.

I’m going to share the key ages we plan around, and then walk you through this 10-year timeline and the different things that we go through in each stage. So we break this into years 1-3, 5-6, and 7-10.

Key Ages

Now let me walk you through the different ages of things you need to consider as you lead up to retirement. So imagine you’re someone thinking about retiring and there’s a lot of different ages that you can decide things. So for example:

• age 62, this is the earliest that you could start social security.
• age 65, this is when Medicare part A starts.
• age 67, this is considered the “full retirement age.”
• age 70, this is the latest that you could take Social Security.
• age 73, this is when RMDs start for most people.

Between these ages, you have different planning opportunities. Let’s say that you’re someone who wants to retire at age 67. You want to start considering your retirement decisions 10 years before so that would be at age 57. Now something that we find common with a lot of people is once we build that financial plan for you and you have clarity. A natural question that comes up is should I actually retire sooner? Can I retire before that was thinking or can I do more in retirement? So let’s take someone who their plan looks really solid. They were thinking they were gonna retire at age 67. They’ve started their planning now at age 57 and they say, wow, I only really need to work a couple more years.

Another age you may need to be aware of is at 59 and a half. Before this age, if you take money out of an IRA, there is a penalty that you have to pay on top of the taxes you pay for that money that comes out. There’s just ages like this you need to be aware of depending on when you want to retire. So this is just an example of once you start, you actually might change what you’re going to do.

Retirement Timeline: Years 1-3

So now let’s talk about the different stages to include when you create a timeline for retirement. There’s different things that we want to cover that are important to do at each stage.

In the very beginning, years 1-3, it’s really important to get organized. Everything that we need to be aware of needs to be out into the open so that we know all the rules around your retirement. We also will know all the resources that you have like company stock, pension, retirement accounts, things like that. So we’re organizing everything. We’re also creating a strategy.

We’re kind of building this initial strategy for the next 10 years for your retirement and beyond so that now you know, okay, here’s what we’re going to do over this time frame and you can start to think about that and you can start to have what we call clarity. This gives you clarity, understanding, awareness of what it is that you’re going to need to do in this window of time and beyond so that your plan will be successful.

During this time, we’re also implementing things. It’s not like we wait until the end of the 10 years when retirement finally happens to actually implement these things. We’re implementing things along the way.

Retirement Timeline: Years 4-6

Now that you’ve gained clarity and you know how everything looks, it is, like I said, common for people to say, well, can I retire sooner? So in this year’s four to six, what we’re really kind of getting even closer, more clarity, more refined on are things like tax minimizing. This is where we want to try and keep as much of your money as possible. That’s minimizing the taxes you pay as you’re using the funds that you’ve saved. That’s one of the big things that we’re trying to do in this step, tax strategy. Another is de-risking your investments. This is where you have been saving money for your whole life. You’ve been trying to grow those funds so that now in retirement you can use them.

Now as we get approach retirement, we’re saying, well, do I need to take as much risk? Do I need these to grow as much as I did t oe do I really need to maintain and just outpace inflation? We’re de-risking your investment portfolio so that your money is there when you need it. You’re not having to see all this volatility along the way as you get closer and into retirement. We’re changing that portfolio as well.

Then this is where we even talk about retirement ages or retirement dates. And this is where some of these conversations of should I change it? Can it be earlier? Do I actually want to keep working longer? This is where a lot of these conversations will happen for many different reasons. People may enjoy what they do or they may say I’m under too much stress and pressure and I actually want to retire sooner.

What’s happening in this stage here is that you’re gaining confidence for your plan. So you are gaining even more confidence as you go through because you’ve seen your plan over the last few years, tracking it. You know you’re on course. You know you can do the things you want to do. We’re building in these strategies that make your plan even better in saving taxes, in taking less risk with your investments. So you’re gaining confidence that the decisions that you’re making you actually can make and you know that and you feel good about them. So that’s really what we’re trying to gain in this middle stage.

Retirement Timeline: Year 7-10

Now as we get really close to retirement in these years 7 to 10, again some of these same conversations can happen that we’ve already talked about and actually the strategy, implementation, and clarity these are always happening. There’s always new things that we’re talking about in each of these stages so those are always happening. So in year 7 to 10 what we’re really talking about is cash flow.

This is a really big piece. You’ve been getting a paycheck, now where is that money going to come from that you need to pay expenses? We can decide where it’s going to come from, and again, you can have confidence in that.

Now, what we’re also talking about, if we haven’t already, are goals. This is one as you get closer, you might say, what am going to do with my time? That might be hobbies, clubs, spending more time with your family, travel. You might have some idea of those goals, but as that date gets closer, they become even more real.

And then now we’re trying to say, what’s this post retirement tax strategy look like. This is where we’ve been planning, we’ve had a really good idea, here’s what we’re gonna do, but now that we know when you’re gonna retire, now that we know all those details, we start to implement this plan for some of those opportunities that happen once you’re retired and you no longer have as much income coming in. And so now we can actually take advantage of those tax saving strategies now that you’re retired.

Another thing that can happen is that new tax legislation or new laws can affect your plan as well. These are the things that you give yourself time to think about if you give yourself this 10-year window before retirement in working with an advisor to build a plan that’s right for you.

Planning Between Spouses

Now as we’re actually planning what years things are going to happen, some of the things that we consider is if you’re married. Are you the same age as your spouse? And do you both plan to retire on the same date, or even in different years? This opens up some interesting planning opportunities as well.

We see very common that spouses will retire within a couple years of each other. And what can happen in that way is one spouse retires, you get comfortable with that income going away from the paycheck, and now you maybe start to use the portfolio. So then when the second spouse retires, as Social Security’s starting and you’re starting to use a portfolio for all of your expenses now, you have even more confidence because you saw it happen after the first spouse retired. So its just this natural easing in to retirement.

But what I want to highlight here is there’s opportunities in what gets done depending on when you retire. So for example, let’s say that we have a spouse who is age 67 and one that’s age 60. Let’s say we know Roth conversions are going to be really valuable for your plan. Well, the next natural question is, well, whose IRA should that come should we be converting first? And so this is where we need to again plan through. Do we use the first spouses 401k? Do we use the second spouses IRA 401k? They’re retirement accounts that have been put into IRAs.

These are the types of things that we actually consider when building your retirement timeline and it’s to this level of detail! This is why the time to build your plan, make sure your plan still works. And now as you get closer to retirement, you feel really confident in it, but you’ve given yourself the time to think all of these decisions through.

Next Steps for Planning Your Retirement

If you’d like to know that you can retire when you’re hoping to, click get started so we can help you retire when you’re hoping to! We’ll ask you a few questions and then help you schedule a free consultation with our team. We specialize in complexities like executive compensation, tax planning, and investment management. Check out our process to see how we can help bring confidence to you and your family’s finances.

Thanks for watching!