Crucial Steps for the “Pre-Go” Years Before Retirement

Key takeaways

Start retirement planning at least ten years in advance, focusing on both emotional and financial readiness.
Plan as if you might retire earlier than anticipated to avoid being unprepared and to allow for greater flexibility.
Gradually de-risk your investment portfolio over a ten-year period to protect against market volatility near retirement.
Use strategic tax planning throughout retirement, especially in the years before required minimum distributions, to optimize tax efficiency.
Make the most of the 'go-go' years by pursuing activities and experiences that bring joy and fulfillment, rather than overly conservative spending.
Be aware of the emotional challenges of retirement, including loss of identity and social connections, and plan to address these proactively.
Utilize frameworks like red-yellow-green to make complex financial decisions more manageable and aligned with your values.
Plan for the later years and potential cognitive decline, including discussions with family and settling important decisions early.

Summary

Introduction to Retirement Phases and the Importance of the Pre-Go Years

The episode discusses the four phases of retirement, highlighting the newly emphasized 'pre-go' years, which begin about ten years before retirement. These years are crucial for both emotional and financial preparation, as they influence the actual retirement process. Dana Onspach emphasizes that planning should begin well before the last minute and should include understanding one's emotional connection to retirement, as well as ensuring financial feasibility.

Retirement Timing and Planning for the Unexpected

Dana Onspach talks about the difficulty in predicting the exact retirement date, noting the average difference of about three years. She advocates for planning as if retiring earlier than expected to avoid being caught unprepared. The episode highlights the risks of forced retirement and the benefits of flexible planning, including de-risking investment portfolios gradually over ten years leading up to retirement, and having a systematic approach like building a 'withdrawal ladder' for income and safety.

Tax Strategies for Retirement Planning and the Opportunity Years

The discussion emphasizes that tax planning should extend beyond just minimizing current-year taxes. It’s important to strategize over the entire retirement span, especially in the 'opportunity years' before required minimum distributions begin at age 73 or 75. The importance of managing income sources, Roth conversions, and capital gains at optimal times is covered, with an acknowledgment that software tools can assist but nuanced understanding remains essential.

Understanding the 'Go-Go' Years and Their Duration

The 'go-go' years are characterized by good health, energy, and the ability to travel or undertake new activities. These years typically last from age 60 to around 80, but can vary greatly depending on individual health and circumstances. Dana Onspach recommends making the most of these years by doing the things that bring joy and purpose, rather than overly conservative spending, and preparing psychologically and financially for the transition to later stages of retirement.

Economic and Behavioral Aspects of Retirement Spending and Happiness

Retirees tend to spend less over time, with a shift towards gifting and meaningful activities, rather than inflation-matching spending increases. The episode touches on the psychological aspects, like the 'arrival fallacy,' where people mistakenly believe achieving a goal will bring lasting happiness. Preparing for and managing the emotional transition is crucial, including planning for potential loss of identity and social connections. Dana shares her personal experience of recalibrating her outlook on retirement.

Decision-Making Frameworks and Emotional Preparation

Dana introduces the red-yellow-green decision framework to help retirees categorize and simplify complex choices, balancing financial practicality with personal values and peace of mind. She discusses the importance of planning for late-life decisions and the emotional aspects, including handling loss of independence or cognitive decline. Having a structured framework can reduce anxiety and help make more confident, values-aligned decisions.

Show notes

We spend years squirreling away money that we eventually hope to live off of in retirement. What should we be doing as we get closer to the big day? Host Robert Brokamp discusses potential strategies with Dana Anspach, who has been a financial planner since 1995 and is the CEO and founder of Sensible Money, a fee-only planning firm in Arizona. She is also the author of three books, including her latest: “Living Off Your Acorns: Your Guide to the Four Phases of Retirement.”

Topics covered:

-How to systematically de-risk your portfolio as you get closer to retirement-Deciding when to retire, and planning for the possibility that it may be sooner than you prefer-Strategies for lowering your tax bill over the course of retirement-The benefits of categorizing the often-complex decisions about retirement as green, yellow, and red-The “arrival fallacy” and steps to take to ensure your retirement is as fulfilling as possible

Host: Robert Brokamp, CFP®, EAGuest: Dana Anspach, CFP®, RMA®Engineer: Kristi Waterworth

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