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The Retirement Countdown: Why the 5 Years Before Retirement Are Critical


The 5 years before retirement is the first half of the crucial decade surrounding retirement, known as the "10-year critical period." This 10-year period is a pivotal aspect of retirement planning and demands careful consideration and strategic decision-making. In this blog post, we explore the key elements that make this period so significant. From adjusting investment strategies to understanding retirement costs, managing healthcare expenses, and preparing for lifestyle changes, we delve into the strategies that can help ensure a comfortable and secure retirement.

1. Critical Period for Retirement Planning:

The five years before and after retirement, known as the "10 year critical period," are crucial for financial stability. During this time, investment portfolios are most vulnerable, and poor market performance can significantly impact retirement plans, potentially delaying retirement age.

2. Adjusting Investment Risks:

It's essential to reduce investment risks in the portfolio during the five years leading up to retirement. This often involves shifting the balance towards a safer mix, like 50% stocks and 50% bonds, to protect against market downturns, even at the cost of missing potential market upswings.

3. Understanding Retirement Costs:

Contrary to common belief, retirement expenses can be high, often mirroring or exceeding pre-retirement spending. Planning for retirement should include a realistic budget for lifestyle choices, such as travel, dining, and leisure activities, and should account for increased spending during the initial active years of retirement.

4. Managing Healthcare and Big Expenses:

Preparing for healthcare costs, including Medicare, supplemental plans, and long-term care, is vital. Additionally, planning to pay off significant expenses like mortgages or loans before retirement can lead to a more financially secure retirement. The average healthcare cost for retirees can be substantial, requiring careful budgeting and planning.

5. Envisioning Retirement Life:

It's important to consider the social and psychological aspects of retirement, such as maintaining friendships and finding new purposes beyond work. Planning for how to spend time, whom to spend it with, and what activities to engage in can greatly impact the quality of retirement life.

The journey to a fulfilling and financially secure retirement is more than just a matter of saving money; it involves strategic planning, especially during the critical 10-e period. By adjusting investment risks, accurately forecasting retirement costs, managing healthcare and big expenses, and envisioning a retirement life that aligns with your personal goals and values, you can navigate this transition with confidence. Remember, the decisions you make in the five years before and after retirement can significantly influence your quality of life in your golden years.


About The Author

Alchemist Wealth is led by the expertise of Andrew J. Tudor, CFP®, RICP®, CAP® and Fred Tudor III, AFC®, MBA. Alchemist Wealth serves clients as a fiduciary specializing in providing fee-only financial planning, investment management, and retirement planning services. With over 2 decades of combined experience in financial services, Fred and Andrew bring a wealth of knowledge and personalized solutions to meet your financial goals.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Alchemist Wealth, LLC is registered as an Investment Adviser with the State of Ohio and only provides advisory services in states where registered or otherwise exempt from registration. All information provided herein is for educational and informational purposes only and should not be viewed as investment advice. Any links to third party information or data are believed to contain accurate information at the time of publishing.

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