Retiring in 3 Years? 5 Steps to Retire Smart

There is no do-over for retirement.

There are a million things to think about. Will my income be secure? What if inflation heats up? Is my medical taken care of? What happens if I have a major medical event? Most people do not want to be a burden to their kids and they do not want to go back to work!

So before you retire, you want to be confident you made smart choices and that your financial future is rock solid.

Here we layout 5 smart steps you should take before you retire:

  • Take inventory of your income sources
  • Understand your expenses
  • Plan for your gap years
  • Identify what if scenarios
  • Align your investment plan

Watch Here:

Show Notes:

Full transcript:


Anthony Saffer & Alex Okugawa

Anthony Saffer 0:00
There is no do-over for retirement. Are you confident that you’re ready to take the plunge? Today we explore five things you should be doing three years before retirement.

Anthony and Alex here from One Degree Advisors are you about three years out from retirement today, we’re gonna break down five keys to success when it comes to retirement, make sure to like and share this with others. All right, Alex. So let’s get right into it. retirements, a big decision, people have worked their entire lives to get to that point, navigating the transition with success starts years before people get in there. Yeah. And

Alex Okugawa 0:38
today, we’re talking about five things people should take inventory of and account for. I know there’s more than these five. But if we simplify down, I’d say these are the five most important things people need to do about three years out from retirement.

Anthony Saffer 0:51
Yeah, so let’s get let’s kick it off with taking inventory of income sources. And I like to also think about it in terms of establishing stability in your income.

Alex Okugawa 1:00
Yeah, so a lot of people are going to have things like social security, maybe you’ll have a pension, either private either a private pension or a public pension, and maybe also have rent. So really accounting for all these different income sources establishes a base.

Anthony Saffer 1:13
So also, we want to do that by establishing or understanding your expenses.

Alex Okugawa 1:17
Yeah, so that’s number two is looking at your expenses. I want to give a cautionary tale here. Most people underestimate their expenses, right that most people go, I live pretty frugally. I don’t spend that much what most people fail to account for is things like holidays, birthday parties, I’m going to need a new car in the next couple of years here, right? All these expenses start to add up. So we don’t necessarily need to put people on budgets, and you don’t need to have every single thing budgeted out. But you have to have a good idea of what you’re spending and be prepared to, you know, satisfy that spending in retirement.

Anthony Saffer 1:55
As retirees get into it. They, most people want to keep the same standard of living, right. Simply adding up your expenses is not always enough. It’s looking at where am I spending right now before retirement? And how can I convey that into retirement being conservative and giving yourself a cushion? Yeah, absolutely. All right. So next is planning for those gap years. Yeah, this one

Alex Okugawa 2:15
is important. I think this is one most retirees fail to account for. So really, your gap years are the time when you start retirement, and the period of time until sources of income like Social Security, or your pension begin, these are golden years for planning. A lot of people don’t do planning during this time, during these gap years, your income might be very, very low, your tax rate might be low, it could be a golden opportunity to do things like Roth conversions, take advantage of your low tax rate, and lower your lifetime tax bill.

Anthony Saffer 2:49
Right. Planning for those gap years is really important in the transition not just upfront, but how where are those gap years going to come up. And

Alex Okugawa 2:55
so let’s take a look at an example here. So we have our character, her name is Sally, let’s say Sally wants to retire at 62. Now Sally has decided to wait to take Social Security at her full retirement age of 67. So during this period of time, I mean, she’s gonna have to make up income until Social Security starts. These are called the gap years, these are golden years of planning opportunity. And you have to plan out how am I going to make up my income before big income sources like Social Security pensions start to kick in.

Anthony Saffer 3:30
So most people also know that not everything works out on paper, you know, in reality, just like you draw it up on paper. So in that scenario, what are the what-if scenarios that we should be planning? Well, again,

Alex Okugawa 3:42
let’s go back to our scenario here. Sally has very accurately estimated her expenses, she was conservative, but this is what an average year looks like. Part of our planning process. And really what we help folks with is planning for the what-ifs in life, right? What happens if I have a long-term care event? What happens if inflation starts to heat up? What happens if investment returns don’t look as good going forward, right? All these different what-ifs can start to derail a plan. But what can give folks confidence is to say, look, I’ve What if these different scenarios, here’s how we can react and change based upon different circumstances. Yeah,

Anthony Saffer 4:19
and we can’t plan for everything. But we can create enough cushion and flexibility in a plan to be able to address those needs as they come up. Yep. All right. So then lastly, align your investment plan with your financial plan.

Alex Okugawa 4:30
Yeah, well, and on this one, this one’s important because you need to make sure the investments are aligned with your different income sources, what your expenses are going to be and what your gap years might look like. So one of the biggest mistakes we’ll see a lot of retirees make is they don’t have enough things like cash and bonds. For those first several years of retirement. What that does is that puts you at risk for what’s called the sequence of returns risk. I’ll show this visually because it can be a little bit of a complex subject but I think this illustration breaks it down very, very nicely. Here you’ll see Portfolio A, B, and C, okay? The average annual return between all three is 7%. But you’ll notice, oh man, they’re their destination is vastly different. Well, why is that? Well, Portfolio A in the first year had a 22% return. Portfolio B in the first year had a 7% return and then portfolio C in the third year had a negative 7% return. So basically, what happens here is the sequence of return risk. If you have a negative year early on, it harms your long-term retirement plan. So that’s why making the portfolio investment appropriate at the onset is so important.

Anthony Saffer 5:38
We know that stock markets are cyclical that can affect investments. Having those large negative returns in the very early parts of retirement is particularly dangerous. That’s why it needs to be planned for with a well-diversified portfolio. And let us know what you think. What did we miss and what are you doing to prepare for a successful retirement? If you liked this video, make sure to like and subscribe for more. Thanks for watching.

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