Coasting in Retirement – Episode 86
The final years before retirement can feel like the last few yards before crossing the finish line. You have spent decades working and saving, but some of the most important financial decisions still lie ahead.
According to host Josh Null, owner of Gulf Coast Financial Advisors, and cohost Jay Stubbs, Director of Risk Management for Providence Partners and Providence Benefits, this period is known as the Retirement Red Zone: the five years before retirement and the first five years after it. The financial decisions made during this period can carry greater weight because there may be less time and earned income available to recover from costly mistakes.
In this episode of Coasting in Retirement, Josh and Jay discuss six areas that deserve careful attention before you leave the workforce.
#1: The Reality of Expense Tracking
Many retirement checklists begin by telling you to “estimate your future expenses.” However, those estimates often focus on regular monthly bills while overlooking occasional expenses and smaller purchases that accumulate over time, such as annual insurance premiums, home repairs, birthday gifts, or frequent online orders.
In the Red Zone, you have to transition from estimating to accurate, historical tracking. Small routine purchases and occasional larger expenses may not seem significant on their own, but together, they can have a considerable impact on your retirement budget.
Josh and Jay recommend reviewing at least 12 consecutive months of bank and credit card statements. Expenses can then be divided into two general categories:
- Essential expenses: Housing, taxes, insurance, utilities, groceries, and other necessary costs
- Discretionary expenses: Travel, dining, entertainment, hobbies, and gifts
Discretionary spending may actually increase during the early years of retirement. With more free time available, retirees may travel more frequently, eat out more often, or spend more on hobbies and family activities.
Looking backward at what you currently spend can provide a more realistic foundation for planning forward.
#2: The Pre-65 Healthcare Bridge
Medicare generally becomes available at age 65, but many people hope to retire several years earlier. Someone retiring at age 60 or 62 may need to cover several years of healthcare expenses without an employer-sponsored plan. This “healthcare bridge” can be one of the biggest financial hurdles for early retirees.
Employees often see only their portion of the health insurance premium deducted from each paycheck. Their employer may be paying a significant share of the total cost. Once employment ends, that contribution may disappear.
Josh and Jay discuss three possible ways to bridge the gap:
- COBRA continuation coverage, which may allow you to temporarily remain on your employer’s health plan while paying the full premium and applicable administrative costs.
- Affordable Care Act Marketplace coverage, where premiums and possible subsidies depend on factors such as household income, family size, age, and location.
- A spouse’s employer-sponsored plan, if one spouse continues working and has access to family coverage.
Each option has different costs, provider networks, eligibility requirements, and coverage limitations. Those details should be closely reviewed before choosing an early retirement date.
#3: Account Consolidation and “Decluttering”
After several job changes, it is common to approach retirement with a current workplace plan, old 401(k)s, IRAs, and taxable investment accounts held at different financial institutions. Having several accounts does not necessarily mean your investments are properly diversified. Different accounts may own many of the same funds, leaving you more concentrated than you realize.
Reviewing your accounts together can help you understand your overall investment allocation, fees, tax treatment, and beneficiary designations. In some situations, consolidating eligible accounts may also simplify recordkeeping and make it easier to coordinate retirement withdrawals.
However, consolidation is not automatically the right decision for everyone. Fees, investment choices, creditor protections, plan features, and tax considerations should be evaluated before moving any retirement assets.
The goal is not simply to reduce the number of statements you receive. It is to understand how every account fits into your larger retirement strategy.
#4: Stress-Testing Your Withdrawal Rate (Beyond the 4% Rule)
The 4% withdrawal rule is one of the most familiar retirement planning guidelines. While it can offer a useful starting point, it cannot account for every retiree’s circumstances. A sustainable withdrawal strategy depends on your retirement age, expenses, investments, Social Security benefits, pensions, taxes, healthcare needs, and desired legacy.
The timing of market returns also matters. A major downturn shortly before or after retirement can be especially damaging when you are simultaneously withdrawing money from your portfolio.
Josh and Jay explain that retirement projections can test a plan against different market returns, inflation rates, spending patterns, and life expectancies. If the results reveal a potential weakness, adjustments can be considered while you still have employment income.
Those adjustments do not always require a major change. Working several additional months, increasing savings, modifying discretionary spending, or adjusting the investment strategy may improve the plan’s long-term outlook. As Josh states, “You want to know if the parachute works before you jump out of the plane.”
#5: The RMD Tax Window
Many people assume tax planning becomes less important after retirement. In reality, the years between leaving the workforce and beginning Required Minimum Distributions (RMDs) may create a valuable opportunity for tax planning. The age at which RMDs begin depends on your birth year under current federal law.
If a large portion of your retirement savings is held in pre-tax accounts, such as traditional IRAs or 401(k)s, future RMDs could increase your taxable income. This may move you into a higher tax bracket, affect the taxation of your Social Security benefits, and potentially increase your Medicare premiums through income-related monthly adjustment amounts, or IRMAA surcharges.
For this reason, retirees may want to evaluate strategies such as Roth conversions during this lower-income window.
A Roth conversion moves money from a tax-deferred retirement account into a Roth IRA. The converted amount is generally included in taxable income for that year. In exchange, qualified withdrawals from the Roth IRA can later be tax-free, and original Roth IRA owners are not required to take lifetime distributions under current law.
Roth conversions still require careful planning because the converted amount increases taxable income for that year. Converting too much at once could move you into a higher tax bracket, affect the taxation of Social Security benefits, or increase future Medicare premiums. Rather than focusing only on the current year’s tax bill, Josh and Jay encourage retirees to consider how taxes may affect them throughout retirement.
#6: Resolving the “Quiet” Estate Planning Holes
Estate planning is not only about deciding who receives your property after your death. It also determines who can make financial and medical decisions if you become unable to manage them yourself.
An updated financial power of attorney may allow a trusted person to manage bills, accounts, and other financial responsibilities during an illness or emergency. A healthcare directive can communicate your medical preferences and identify who may make healthcare decisions for you.
Beneficiary designations also deserve careful attention. Retirement accounts and certain other assets generally pass according to the beneficiary forms on file rather than the instructions in a will.An outdated designation could therefore direct an account to someone you no longer intend to name as a beneficiary.
Josh and Jay recommend reviewing the beneficiaries on retirement plans, IRAs, insurance policies, and other applicable accounts. Retirees should also confirm that their legal documents remain current and determine whether their financial institutions require separate forms or documentation.
Planning Beyond the Checklist
The Retirement Red Zone is not defined by one investment decision. It is a period when spending, healthcare, taxes, investments, income, and estate planning must begin working together.
Accurately tracking expenses helps determine how much retirement income you need. Healthcare costs can influence when retirement becomes realistic. Account organization affects withdrawal and tax strategies, while estate documents help protect your family during an emergency.
By reviewing these areas before leaving the workforce, you have more time to identify potential gaps and make thoughtful adjustments.
To hear the full conversation, watch Episode 86 of Coasting in Retirement.
Are You Approaching the Retirement Red Zone?
If retirement is within the next five years, Gulf Coast Financial Advisors can help you evaluate whether the different parts of your financial plan are working together.
Call 251-327-2124, or click this link to schedule a meeting.
Meeting options include:
- 15-minute introductory phone calls
- 30-minute Zoom meetings
- In-person meetings in Fairhope, Orange Beach, or Mobile
No pressure. No obligation. Just a conversation about preparing for the transition into retirement.
Additional Sources:
- When can I sign up for Medicare? — Medicare.gov
- Continuation of Health Coverage (COBRA) — U.S. Department of Labor
- Saving Money on Health Insurance — HealthCare.gov
- Retirement topics – Required Minimum Distributions (RMDs) — Internal Revenue Service
- Medicare Costs — Medicare.gov
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.