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RETIREMENT
Retirement

5 things to do 5 years before retiring

Alyssa Oursler
Special for USA TODAY

Whether you view retirement as a finish line or starting line, one thing’s for sure: You don’t want the line moving as you approach. According to Billy Lanter, a fiduciary investment adviser at Unified Trust Co., the last five years before retirement come with some specific to-do's to make sure all goes as planned:

  1. Lower your risk capacity.
  2. Prepare your portfolio for the distribution phase.
  3. Map out several retirement scenarios.
  4. Make post-career plans.
  5. Have a cushion.

“Most people theoretically know they should be taking less risk as they get closer to retirement, but that’s a vague concept,” he explained. To make it more tangible, it’s important to determine your risk capacity about five years before retirement — not in terms of how much risk you’re willing to take, but in terms of how much is appropriate for your goals and the market.

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“Low interest rates for the last several years have driven many retirees to take on more equity risk in hopes of achieving better returns,” Lanter added. “Don’t forget to monitor your risk capacity as return expectations change.”

Risk capacity is just one aspect of the broader transition from the “accumulation” phase of investing to the “distribution” phase. In a nutshell, all the assets you’ve accumulated over the years will actually get paid out in retirement. It’s important to have a picture of how this will work. “Review what you can expect to receive from guaranteed income sources, such as Social Security, pension income, annuities and so on,” Lanter said. “Then review strategies regarding how you can maximize these benefits.”

This, too, should be a dynamic planning process. In fact, Zaneilia Harris, president of Harris Wealth Group, recommends clients have several plans prepared, showing different spending patterns, for example. The freedom to travel is one perk of retirement, she says, but not all clients have budgeted for its cost.

Of course, not all lifestyle planning is necessarily financial. Both Harris and Lanter emphasized the importance of making post-career life plans. “The idea of sleeping in and golf every day only goes so far,” Lanter said. “An active lifestyle and mental engagement is an essential part of a successful retirement plan.”

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Naturally, such post-career plans are easier to make if your finances are already smoothed out.

How to personalize your retirement planning

Different personalities will face different challenges as they prepare for retirement. Here are some questions to ask yourself, and some tailored advice depending on your general mindset.

Do you consider yourself detail-oriented?

If the answer is “yes,” Lanter says you should stop checking your investment account balance every day, or even every week! “When you’re in the distribution phase of life, you can’t be worried about whether the market was up today or down last week,” he says.

If the answer is “no,” Lanter says it’s time to build good habits and start budgeting. “Begin tracking your expenses, reviewing spending habits and thinking about what expenses will be in retirement. Odds are you won’t start monitoring your spending more in retirement if you’re not doing so already.”

Do you consider yourself generally bullish or bearish?

If you’re more of a perma-bull, which means you generally think stocks go up and assume at least 10% annual returns, it’s time to rein in that optimism and be more cautious. “Liquidity needs are looming,” he explained.

On the other hand, if you always think the next major market downturn is just around the corner, make sure you aren’t overly conservative. “Your very best friend those final three to five years before retirement is compound interest,” Lanter said. “Don’t let fear cause you to miss out on these crucial compounding years.”

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