Transcript

Voiceover [00:00:00]: Welcome to Retirement Unlocked with Larry Heller. Your life, your way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you. Navigate life transitions with confidence.

Let’s dive into this week’s episode.

Matt Halloran: Hello and welcome to another Retirement Unlocked with your host, Larry Heller. Today, we’re going to do a countdown to retirement, a five-year planning guide. Okay, Larry, so how do we begin planning? I’m assuming we’re talking about five years out from retirement.

Larry Heller [00:00:36]: Yeah, of course you shouldn’t wait until you’re five years out to start thinking about how to plan for retirement.

You really start actually in your 20s. But, but as you’re getting closer now, it’s a little bit more real. You can see the kind of the end game there. So I thought it’d be great if we kind of go through a countdown in the last five years and some of the things that we see that you should be really kind of implementing as you hit into these last five years.

Matt Halloran [00:01:03]: All right, so how do we lay the foundation?

Larry Heller [00:01:06]: Okay, so the first one is this one is really, really timely. It’s really starting building up cash reserves. Now why do we want to build up cash reserves? Well, when you get to retirement, you’re going to need to withdraw. At least most people are going to need to withdraw money from their portfolio.

And we like to say that you want to be able to draw money from cash, short term investments, things that don’t have the fluctuations because you don’t want to have to sell something that’s down. And as we record this, we’re in the middle of the tariff situation and we can see the extreme volatility that we’re having in the stock market. So think about it. If you retired on April 1st and now you got to raise money from your portfolio to withdraw, you’re going to be doing it at a very rocky scenario. So start thinking about this because we say two to three years because that’s usually the time horizon, three years that we see the market has recovered in the past.

I mean there’s no guarantee in the future. But start building that up so when you do hit retirement, you can avoid having to sell on the down and the, and the down times.

Matt Halloran [00:02:24]: So you can also do some catch up stuff. Right. So if you haven’t been able to save in the past, there are ways number of years out for you to.

And I don’t know if they still call it the catch up.

Larry Heller [00:02:33]: They used to, yeah, they still call the catch up, but now there’s kind of the enhanced catch up. So, so for 2025, the max you can put it in your 401k is $23,500. But if you’re 50 years old or older, you can catch up by putting another $7,500 into a total of 31,000 thousand. But if you’re in the ages 60 through 63 and a lot of times you may be with it when you’re within the last five years of retirement, you’re able to put away 150% of the normal catch up.

So for a total of 11,250. So when you add that with your 23 5, you’re able to put away 34,007 50 just under $35,000 for those three years. So take advantage of that. And if you haven’t made the corrections for this year in 2025, make sure you adjust your withholdings with payroll so you can maximize that as you get closer to retirement.

Matt Halloran [00:03:37]:  That I didn’t realize it was that much.

I mean that, that, that seems to be a pretty substantial ability to go ahead and deposit now. So okay, so, so we are going to go ahead and we able to do the catch ups and stuff. What are some other things that you focus on five years out?

Larry Heller [00:03:51]: Yeah, so we start thinking about, you know, the, the benefits of the post tax contributions to your 401ks and maybe did you do some Roth? Should you do some Roth?

Depending upon what tax brackets you’re in now, what tax brackets you’re in there. So we start kind of thinking about where you’re going to be withdrawing this money down the road from which accounts. And a lot of these become really tax planning opportunities. And this is really, really crucial because when you get into retirement these accounts now if you’re over age 60, retired in 1959 or earlier, your requirement distribution is age is 73. If you’re born in 1960 or later, your distribution is until age 75.

So if you’re retiring your 60s, you don’t have to withdraw from these retirement accounts until your mid-6770s. There could be some big required minimum distributions at a much bigger tax bracket later on. So you want to kind of start thinking about are you going to be withdrawing some of that earlier and maybe taking advantage of lower tax brackets. So that’s really some of the things that we start thinking about five years out and where you’re going to pull this money out in retirement and start to really think about how much money you’re going to need need in retirement and creating a finance, a financial plan so where is the income coming from? Do you have Social Security?

Do you have a pension? How much you have to pull out? What are your expenses going to be? And that’s really the other thing, kind of the laying the foundation, which is really not a financial goal. I really, it’s more of a personal goal how you’re going to live.

The, the next act, the second act in your life I like to call it, and that’s where you’re going to live. Are you going to stay where you are? You’re going to downsize? Are you looking to buy a second place now that you’re, you’re going to be retiring? A lot of people don’t realize that you’re probably going to spend some more money because you have more free time.

So are you going to travel? Are you going to go out more? What are you going to do? So trying to kind of figure that out and put the game plan in so when you’re at that point, you really feel comfortable about moving into retirement. Because I don’t care how much money, when you turn that spigot off, people start to get a little bit nervous on how much they are going to spend.

Matt Halloran [00:06:15]: All right, so we built a financial plan. We’ve made some of those decisions. Now we’re fast forwarding to three years before you retire. What that’s the next milestone.

Larry Heller [00:06:23]: Okay, so now just to expand a little bit about what we talked about, about visualizing your second second act.

Now you’re three years out. So now you again looking at trying to figure out what the non financial. What are you going to do every day? So we have a lot of clients to retire and they’ve got enough money but they, they what is going to make them get up every day? So some of those non financial planning, we’ve talked to life coaches on the podcast here that specialize in that.

So trying to really talk about that and try to figure out what’s going to, what’s going to get you motivated. And then also looking at some big ticket items and maybe maybe being able to pay for some of those ticket items before your retirement while you’re still working because those can have impacts on your, on your retirement cash flow. And then like I said, now you’re getting a little bit closer to retirement. We want to build those cash reserves. So looking at that asset allocation three years out, should we reduce our allocation to equities?

Should we start thinking about changing our reinvestment strategy on investments of dividends and interest income to a more cash distribution to build that up. And what is the right allocation in retirement? It’s not putting all your money into cash and bonds and because that may not keep up with inflation and you may run out of money. So what is the right asset allocation for you? And determining what it’s going to be now and start to make some adjustments so you have the right asset allocation when you get to retirement.

Matt Halloran [00:07:57]: So we’ve laid the foundation with a good financial plan. We’ve started to make some other investment decisions. You’re visualizing what the second act is going to be. Whether that’s you’re going to continue to work a little bit or you’re not going to be working at all. All that kind of work optional sort of thing.

Now, now we’re two years out. Oh, I don’t know about you, but this is when my anxiety would actually start creeping in a little bit because like I can see the finish line now. Where do we go from here?

Larry Heller [00:08:22]: Yeah. So now we’re going to really firm up that retirement cash flow and the tax strategies we’re going to, if you haven’t already met with a financial planner, really critical now to really start really fine tuning what that strategy is going to be.

Should you be taking your social Social Security and if you’re below normal ret retirement age, when should you delay your Social Security, how that comes into, how that come into play. Start thinking about that decision and running some numbers and seeing where it’s best not only for you, but if you’re married, the Social Security decision could impact your spouse. So knowing what you want to do, firming up the cash flow, if you’re lucky enough to have a pension, start really seeing what that’s going to be. And if you have a pension, are you taking life only you taking joint rights of survivorship, really starting to fine tune those and again further fine tuning your asset allocation as we get closer. And now really start thinking about those tax efficient withdrawal strategies.

Because if you’re going to be withdrawing from your your non retirement account yet you have to build up the cash there. But if you’re going to be withdrawing from your a different account, you may want to build up the cash there. You may want to have different asset allocations. We have clients that different allocations because they have a Roth account, they have a retirement account, the two spouses may be of different ages and they have the joint account. So one overall asset allocation is great to know that but you may want to have different allocations in each one of those accounts.

So looking at that, deciding on that, firming that up, retiring that. As we’re getting closer to that finish line.

Matt Halloran [00:10:04]:  This the next phase here when you’re out. This is one of the favorite things that I’ve heard you talk about another podcast before. I’m not going tell everybody what it was.

I’m going to let you reveal it one year out. Okay, so financial refine, finalizing everything, really making sure that all boxes are ticked in order for you to really hit the finish line, whatever that looks like to you. So, so we’ve, we figured out the income but you ask your clients to do something that I think is really, really smart. Do you mind if we start there?

Larry Heller [00:10:34]: And yeah, we start there but I basically said let’s, let’s do a retirement lifestyle dry run.

So both personally kind of maybe take a day or two off and kind of visualize now that you’re retirement and then also projected wise on the retirement income while you’re still employed. Are you now you might have come up with your expenses. Some people I know have a hard time and trying to figure out what they’re spending. Other people at least certain professions out there come in with spreadsheets and know exactly what their expenses are. But if you’re not start doing a, what we call a dry run.

And there’s, there is great ways of doing that. One of the ways that we basically do is that most people put all their money in their paycheck and their checking account. They just spend on that. But one of the tricks that we try to do before your retirement one year out is have everything go to your savings account and once a month move money over into your checking account. And if you do that for 12 months and you didn’t have to move anything else over, you’ll have an idea what you spend.

If you, you’re short, you need to move some additional money over in that year. At that time write that down and you’re getting an idea of really what you’re going to spend. Now it may not be exact because like I mentioned earlier, when you’re retired you may be spending a little bit more money but it’s giving you an idea of okay, can I live on this money? Is this money working for me? So making sure that you have all your liquidity and your emergency reserves all being built up in the one year timeframe.

So, so really kind of visualizing lizing that and trying to have a dry run is what we, is what we determined. So that’s an interesting concept that a lot of people like that idea.

Matt Halloran [00:12:22]: I love that idea, I love that idea on a lot of different levels in a lot of people who are getting this close to retirement also have a substantial amount of vacation days saved up. And so you can take that time off. In fact, you probably should to do that actual, you know, psychological, physiological, physical feeling of retirement.

If you can take a couple of weeks off and really see what you’re going to do with your time, that can be really big. Now you shared a story previously about somebody who ended up doing this retirement dry run and some things changed. Would you mind talking a little bit about maybe a client experience in doing the retirement dry run?

Larry Heller [00:13:00]: Well, yeah, I mean there’s a couple, there’s a couple of scenarios here that we, we talk about, but one of them is clients wanted to sell the house and move to a different location. And so one of the things that we talk about is before you buy a new place down there, maybe you should, maybe you should rent.

So we’ve had scenarios where clients have done that and they’ve rented somewhere and they realized that really wasn’t, this really wasn’t the spot for them. So, so really trying to kind of put yourself into the shoes of what it’s really going to be would be something that we would, we would recommend. And you know, things change. We’ve corporate executives that retire and they realize that they need something else to go about and what do they want to do? We’ve had clients retire to explore some of their personal dreams, photography, second act careers that they want to do.

So trying to do those and trying to figure those out earlier has made a big difference.

Matt Halloran [00:14:01]: All right, what else do we need to do this close to retirement?

Larry Heller [00:14:04]:  Yeah. So now confirming all the income sources, maybe not it’s one year, maybe a little bit closer, but if you, you have a pension, they’re going to send you exact numbers, you’re going to know exactly what your number is from Social Security. Make sure that you’ve gone to all your different employers over the years.

And if you have any retirement accounts still sitting there, you may want to consolidate them. Understanding your benefits post retirement, are you over 65 and eligible, going to be eligible for Medicare for health insurance needs or are you retiring before 65? You need to look at other solutions such as COBRA or the, or the exchange changed. So transitioning that if you’re with a bigger firm, working with an HR department, that’s great, but a smaller firm, you really want to kind of figure all those out yourself. So all those things are kind of ticked off in place.

So when the day comes, you’re all prepared for that.

Matt Halloran [00:14:58]: All right, well, the day’s coming now, Larry. We’re. We’re knocking on the door of that last paycheck that we’re ever going to get. Where do we go from here?

Larry Heller [00:15:05]: Yeah. So now you’re three months out. You really want to finalize and sign all the paperwork? Well, you know, if you have a pension, putting that in place, making sure that all your, like I said, vacation time and sick leave was all taken care of. If you had an hsa, making sure.

What do you want to do with that? Collecting all the documents, signing all those documents, putting it into place, and then finalizing all the income strategies and the expenses that we talked about and really determining now how you’re going to withdraw the money out from which accounts, starting and making sure that everything is there. So now you really are paying yourself. This isn’t a dry run anymore. This is going to be finalized, and you want to make sure which account that you’re taking up to maximize the income that you’re going to gain, but also minimize the taxes that you’re going to pay.

So. So once you are at that retirement side, it should really be all set up for you. You shouldn’t have as much of the anxiety. If you have a financial plan. If you have a financial plan, you have one of what we call our reservoir strategy, which, again, you can look at some of the podcasts we’ve done on that.

You’ll be prepared for this time, whether whatever is going on in the market, whether it’s up, whether it’s down, you’re going to be ready, prepared, you’re going to be able to enjoy and get ready to enjoy that second act.

Matt Halloran [00:16:32]: All right, so, Larry, okay, so now we’re three months to retirement. Everything is done. We’ve gone through all of the different, you know, major five steps to make sure that you’re preparing for it. How do you bring all of this home and make people understand that working with you is going to make this process so much cleaner and easier?

Larry Heller [00:16:49]:  Yeah, because we’ve actually gone through each one of these steps with our clients. So when they’re ready to transition into retirement, they’re prepared. And then we can execute each one of these strategies that we’re talking about, whether it’s Roth conversions, which accounts we’re taking it out from, putting this together and showing them in a financial plan and a cash flow analysis, accounting for inflation and additional expenses year by year, that they are going to be able to enjoy their retirement. I got to tell you, Matt, most people when we do the retirement plan and the cash flow analysis, underspend in retirement because they’re so worried about running out of money that they spend less than they could and that maybe they don’t enjoy as much as they could. Having a plan in place and, and knowing where everything’s coming from and seeing it year by year in numbers gives them a lot more comfort when they are retired.

Matt Halloran [00:17:45]: Yeah.

Larry Heller [00:17:46]: All right.

Matt Halloran [00:17:47]: Where should they go? If they want to find out more or if you have an existing client that just has some questions, where can they go?

Larry Heller [00:17:51]: Yeah, so they can go to our website, hellerwealthmanagement.com and feel click.

You can click right on the calendly and schedule a 20 minute call, myself or one of the other advisors here. Or you can feel free to call the office at 631-248-3600.

Matt Halloran [00:18:08]:  And if you know somebody who is about five years out from retirement and they’re freaking out, this is a great podcast to share with them so that they can find out what are the different milestones and the different sorts of time frames that they need to be looking at to make these decisions. It’s one of the reasons why Larry does this. This is a great resource for you to be able to share with your friends and family so that they can unlock their retirement.

So for Larry Heller, this is Matt Halloran and we’ll see on the other side of the mic very soon.