Retirement Red Zone: Will Your Savings Hold Up?

The five years before and after retirement are the most crucial for the long-term success of your retirement plan. Here’s why the “Retirement Red Zone” determines whether you’ll enjoy your golden years in peace, or spend them desperately scrambling for income…

From Peter Reagan at Birch Gold Group

How many of us identify with this description?

You have spent decades working, constantly adjusted your retirement plan as you went along, and now you’re getting close to your planned retirement age. That means a change in focus: From growing our savings to protecting our savings.

The closer we are to retirement, the narrower our focus should become.

Because the most important part of any retirement plan must be ensuring your savings will last as long as you do (if not longer).

During our golden years, stability becomes much more important than growth.

Here’s how to get started:

If you hope to retire in five years, now’s a good time to do a realistic retirement needs analysis. Estimate how much you plan to spend each year by using your current budget. Compare your planned expenses to how much retirement income you can reasonably expect. Estimate your life expectancy and insure your assets against long illnesses. If your expenses are too high or your income is too low, you may have to make some changes to your lifestyle or adjust your retirement schedule.

It turns out that the five-year window both before and after retirement are absolutely crucial to your entire retirement, no matter how long it lasts. Insurance giant Prudential calls this period the Retirement Red Zone. Here’s how they explain it:

Long-term investing is one thing.
Pre- and post-retirement investing is quite another.
Why?
Simply put, the stakes are higher.
You can’t afford the short-term losses that a younger investor can, because you may not have time to recover from them.
In other words, time is generally not on your side.
That’s why the 5-year period before and the 5-year period following retirement may represent the most critical time of your investing life.

Now that you understand just how crucial this period is, let’s take a closer look at what we can do about it…

#1 How much will you spend in retirement?

This is a critical factor that determines how long your savings will last.

Fidelity shared a bit of guidance on this topic:

If you know your annual income while you’re still working, expect to spend between 55% and 80% of that every year throughout retirement, depending on your income, retirement lifestyle, and health care costs.

If you plan an active lifestyle in retirement, expect to ratchet up your annual retirement budget by 6 percentage points compared with a less active lifestyle.

Expect 15% of your living expenses to be related to health care expenses after you retire, year in and year out.

There are also other retirement expenses to consider. The SmartAsset website itemized a few of them, and we’ve added clarification:

• Travel
• Housing and relocation
• Recreation (How will you spend your days, and how much will it cost?)
• Helping family (e.g. if a child returns home, or college expenses etc.)
• Taxes –For example: Say you have an annual Social Security benefit of $20,000 in retirement. You also annually withdraw $25,000 from your Roth IRA and your tax status is married filing jointly. While your Roth IRA income isn’t taxable, your total income means you’ll pay taxes on 85% of your Social Security income. So, $17,000 of your income would be taxable.

All of those seem like common-sense expenses to account for in your savings plan. Here are 7 more to consider.

Next up is one of the most important questions to ponder if you’re nearing your planned retirement age…

#2 How long will you live?

According to the latest life expectancy report issued by the CDC, an average male should live about 75 years, and the average female should expect to live 80 years.

But the Social Security Administration (SSA) calculates life expectancy a little bit differently. Let’s see how…

A male born on May 16, 1958 would be 66 years and 2 months old today. According to the SSA, that male could expect to live an additional 18 years, and reach 85 years of age (thanks to improving healthcare technology and other factors).

The same calculator also makes another important point: “The estimates of additional life expectancy do not take into account a wide number of factors such as current health, lifestyle, and family history that could increase or decrease life expectancy.”

Which brings us to the main point: Life expectancy is subject to a lot of different variables, but your retirement savings has to outlast it if you want to enjoy your “golden years” to the fullest.

On top of that, everything above is complicated even further by the last question you need to consider…

#3 What if a major economic downturn occurs during your Red Zone?

The possibility for the United States to enter a major recession in the near-term is higher than you might be thinking.

But as that possibility pertains to the “Retirement Red Zone,” or those 10 years surrounding your planned retirement age, any recession that starts to take shape could set you so far back that you might not recover financially.

That’s why you should take the time you have now to get ready, just in case…

Adjust your retirement savings accordingly

One of the adjustments you still have time to make if you’re nearing retirement is to make sure you’ve diversified your assets properly.

We’ve even featured 3 diversification decisions here on our website, to help you with your asset planning.

One way to diversify your assets is to take a few minutes and learn about the benefits of owning physical precious metals.

That’s because investing in precious metals like gold and silver has been a stable store of wealth for thousands of years, and could also help you build some resilience into your retirement.

And that’s exactly why Birch Gold Group is the #1 gold IRA company of choice – your dedicated Precious Metals Specialist will walk you through your options, step by step. When you’re ready to make your decision, you’ll do so with total confidence and peace of mind.