Why Is Retirement Different?

“At Carolina Retirement Planners, nearly all our clients are in or nearing retirement. As we approach retirement, we are entering a distinctly different “phase” of our financial life. Here’s why…”

Working Phase – Save and Grow

During our working years, we usually put money aside each month in our IRA or 401k, trying to grow it into an even bigger nest egg. We weren’t taking any money out. We could afford to take more risk and had time to recover from a market drop.

During this phase we are usually “avoiding” (delaying, really) paying taxes by putting money into 401k’s or IRAs. This is the “Save and Grow” phase.

Retirement Phase – Income and Preservation

Once you retire things change. You are no longer putting money in your nest egg; in fact you are probably starting to take money out to spend for your retirement. You can no longer take the same risk with your money that you did when you were working. If the market drops and you pull money out it won’t be there to come back when the market returns.

And now you are no longer “avoiding” taxes, you are in fact “paying” them as you spend your IRA and 401k money. You may have a window of opportunity where you can minimize the taxes you will pay. If you miss that window you can end up paying more in taxes than was necessary.

And retirement brings many other decisions that can have a huge impact. What choices should I make taking my pension? When should my spouse and I start our Social Security Payments? Even more important HOW should we do it (its complicated and many people miss out on getting the most from their social security). Should I get a mortgage or pay off my house? What is the best way to pass on what I don’t spend to my spouse, children and grandchildren? Medicaid, Medicare, Long Term Care, the list goes on.

It’s easy to see why you may need a specialist to handle this new phase. Yet we see many people who are using the same strategies they did while they were working even though they are in or near retirement. And not even thinking about all the other issue retirees face.