The Power of Pre-Retirement Planning

Most people will spend more time planning for retirement than in retirement itself

That’s why resourceful baby boomers are doing more research and turning to financial coaches for help with pre-retirement planning. It’s a question that all pre-retirees should be asking themselves: Have you done everything that you can to ensure a successful transition to life after work? Remember that the closer that you get to retirement, time shifts from being on your side to working against you.

Do you know how close are you to retirement?

Once you determine that you are 5-10 years away from retirement, you should think of yourself as being in the “pre-retirement” stage and you should take the following critical steps now; which should include a in-service roll-over from your current 401k to an IRA.

Step One:

Know what plan fees you are paying for your retirement

Twenty years ago, the cost of administering a 401(k) plan was primarily the responsibility of the employer. Today most of that burden has shifted to you, the pre-retiree. According to a recent article in Consumer Reports, “Roughly three-quarters of 401(k) participants don’t know how much they are paying for their plans.”1

The U.S. Government Accountability Office found that someone who invests a $20,000 balance over 20 years in a 401(k) plan that costs 1.5 percent year is likely to come away with 17 percent less than someone in a plan that costs just 0.5 percent.2

Administration fees in 401(k)s are easy to overlook. Examine the transaction history. Any removal of partial shares may be a sign that your shares are being sold to pay fees – which could be a drag on long-term total return.  Your 401(k) may include all sorts of expenses, not just from your employer or administrator but the investments inside your 401 (k) usually are mutual funds and they can come with some hefty charges that can reach 3-4%.  

Step Two:

Limited investment choices? Try this: In-Service Withdrawals

The best candidates for this step are plan participants who think they will not reach their retirement goals based on an employer’s short-list of investment choices, and the often times high expenses related to 401k plans and mutual funds.  To be eligible, participants often must meet certain requirements. Plan guidelines may include a minimum age restriction (usually age 59½), a length-of-service requirement (often two or five years) or both. Employer plans often limit these withdrawals to vested employer matching contributions, plus earnings, as well as rollovers and earnings from previous employer plans. Some plans allow employees age 59½ and older to withdraw their entire balance without any further restrictions.

Which plans permit these withdrawals?

  • Profit-sharing, 401(k), stock bonus and employee stock ownership plans usually allow them.
  • Cash balance, target benefit and money purchase plans may permit them for employees who have reached the plan’s normal retirement age.
  • Defined benefit plans usually do not allow them, but may offer a lump-sum distribution.  

Step Three:

Have a written financial plan

A play-book if you will.  I often times say; “those who have a plan will outperform those who do not” .  Its not all about investments, either.  Its about income and making sure no matter what we can mathematically prove that your income wont stop when your paychecks do. Also, that this income will last your entire life in the most guaranteed and stable way possible.  Taxes is the starting point of any plan and a Tradewell Tax & Financial Tax Adviser can help with this along with the timing of your Social Security Benefits.

Step Four:

Visualize what you are retiring “to” as opposed to what you are retiring “from”

If you are in pre-retirement planning mode, you are probably still in the mature phase of your career. Why retire “from” something when you can retire “to” something? Have you given yourself time to think about your future? Can you imagine life after work? In our normal day to day lives, we are consumed by the demands of family, friends, and careers. When retirement does finally come, the dramatic changes can become a source of stress wholly unrelated to the availability of money and resources.

Relax and visualize your future
Maybe you’d like to scale back the hours you put in over the next few years. If you’re not clear on what you’re spending your money on at home, set up a system to track your expenses so that you have clarity.  Oftentimes many retires find themselves spending more once the paychecks stop.  Think about this for a moment; we wake up everyday looking for things to do instead of going to work.  

Let experience be your guide

If you are saving for retirement, but not taking advantage of tax-deferred investing, it could have a dramatic impact on your future. Consider consulting with an experienced representative today on how tax deferral can positively affect the growth of your retirement assets.

About Mike Albertson

The Founder and CEO of Tradewell Tax & Financial, Mike is also a fee-based Investment Advisor Representative and Fiduciary who is required to put his clients’ interests before his own. In 2002 Mike entered into the financial services sector as a way to learn about people and help them.

Since those early days his practice has grown into one of the Fort Wayne region’s best investment management firms.  Applying his unique quarterbacking approach to traditional planning and investment management, Mike supervises a full-time team of attorneys, Enrolled Agent, tax advisors, and insurance professionals.

Article Footnotes

  1. Consumer Reports, 9/30/18
  2. GAO


Mike Albertson is an Investment Adviser Representative. Advisory services offered through Secure Asset Management, LLC (SAM) a Registered Investment Adviser.

Wes Phelps is an Investment Adviser Representative. Advisory services offered through Secure Asset Management, LLC (SAM) a Registered Investment Adviser.

Tradewell Tax and Financial is not affiliated with Secure Asset Management

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