Pre and Post Retirement Planning. The Phases Of Retirement Planning
As retirement-age children are typically present when we counsel their parents on LTC, we often ask them how they plan to avoid the “crisis planning” their parents are currently experiencing. We find that they are equally shocked and unaware that their retirement insurance plan of Medicare and supplements will not address long-term care needs. We advice them that the 3 goals of retirement planning are to minimize income & death taxes, achieve high rates of return on their retirement investments and preserving assets from long term care spend down without losing control.
Retirement has changed radically over the past several decades in America. Years ago, you expected to work most of your life for a single, large employer and you then would count on a pension in addition to your Social Security upon retirement. Today, in all likelihood, you may be financing retirement with money you saved through IRAs, 401(k)s and investments. Pensioners are now the exception the norm.
All federal employees and 80 percent of state and municipal employees — but only 20 percent of private-sector employees — are enrolled in pension plans.
Consider these five phases of Retirement Planning:
PHASE 1: ACCUMULATION
This period lasts your entire working career and includes choices of employers that contribute to your retirement savings and may have a pension plan, along with your ability to contribute the maximum allowed throughout your career. As an example, $100,000 in savings invested at 5 percent compounded annually will grow to $168,000 in 10 years and will double in 15 years.
PHASE 2: PRERETIREMENT
This phase begins when you reach 50 or are 15 years away from retiring, whichever happens first. Although you may not wish to do so, this is the stage to begin thinking of end-of-life provisions and estate planning.
PHASE 3: EARLY RETIREMENT
This phase lasts from the day you retire until you are 72 years old. A key detail in this phase is to make your family aware of your financial plan, living choices and long-term health care wishes in a calm, supportive way. To be conservative, you should project your needs to age 100 and consider the growth of your savings, inflation, taxes, living expenses and, most importantly, health care costs and how to manage them until then. You must also consider how to use the MRD (minimum required distribution) of your tax deferred accounts such as IRAs, 401(k)s, etc., which require withdrawals at 70½.
PHASE 4: MID-RETIREMENT
This phase begins at age 72 and lasts as long as you are able-bodied and high-functioning. Despite your good health, you must advise your family how you wish your health care to be rendered should your condition decline significantly. Conversely, the loss of certain mental abilities is a natural consequence of the aging process and by our nature, we resist letting go of our autonomy and control. This is usually characterized by denial and refusing to consider/discuss the impacts of these age consequences. This is where an elder care attorney’s prior or current asset protection planning actually plays out to your benefit. Remember that there is a potential five-year penalty of ineligibility on transfers to qualify for long-term care benefits. Don’t wait for a crisis and then lament, “I could have/should have planned, but I didn’t.” Time is of the essence to do so by age 70.
PHASE 5: LATE RETIREMENT
This phase begins when your health has declined and there is little likelihood of it being fully restored. It is common that one spouse will become the primary caretaker for the other. In this stage, it is critical that elder care and asset preservation planning, hopefully begun during the earlier phases, will produce fruitful benefits to avoid “Crisis Planning” in order to protect against impoverishment of the healthy spouse due to the health care needs/costs of the infirmed spouse.