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Retirement planning doesn’t stop when you retire

Some of the most critical decisions come in the run-up to retirement and in the years after. Here are key factors to consider along the way.

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It may seem, as you approach retirement, that all your years of preparation might soon be over. But retirement is a continuous process — to, into and through your retirement.

To that way of thinking, your retirement is less a hard stop than a series of ever-evolving phases. So, although you may be choosing to bring your career to a close, there is still considerable ground to cover before you can relax entirely. “Planning for retirement doesn’t end the moment you cross the finish line of your career,” says Katie Carlson, head of Wealth Strategy, Bank of America Private Bank. “Important work lies ahead of you to ensure a secure future for yourself and your family and to establish an enduring legacy.” The considerations outlined in the three stages below provide a road map for a successful retirement journey.

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While you’re still working

A few years from your planned retirement date, you may be hell-bent on finishing the race strong. But it’s important in this leg to envision the lifestyle you want in retirement and to figure out your plan to pay for it. The solution will likely include combined income from Social Security, a pension if you have one, possibly deferred compensation, and investments in retirement and taxable accounts. “You’ll want to stress-test your plan to determine how much demand you will be putting on your portfolio to replace your paycheck in retirement,” says Jack Crilly, managing director of Wealth Strategy, Bank of America Private Bank. “The objective is to achieve a sustainable ‘burn rate’ that allows you to realize your desired lifestyle and goals without taking excess risk,” he says.

“This can require a change in mindset for many successful individuals who have built impressive careers and businesses by taking oversized, calculated risks,” Carlson says. But your needs in the two dissimilar phases of your life are quite different, she says, and your advisor can help you determine levels of risk you’re comfortable with that will also provide a predictable and stable financial foundation for your retirement. The considerations might be different depending on the source of your wealth.

For those with extensive equity: Too often executives nearing retirement have portfolios loaded with concentrated stock positions, such as stock options, which could create a risk you might not wish to take. “When you’re close to retirement, view those stock options as gravy and not the sustenance that will secure a retirement portfolio,” says Crilly.

He cites the example of one technology executive who was heavily invested in his company’s stock. The executive grudgingly heeded Crilly’s advice and began liquidating his stock options two years from his planned retirement date, even though he believed, and company culture supported the idea, that the stock hadn’t reached its peak. But by the time he retired, technology stocks had plummeted — his company’s stock had lost 90% of its value — and the executive watched as colleagues who hadn’t sold had to continue working at the now-struggling company or retire with downsized dreams for the future.

For business owners: A business owner who expects to fund retirement with the proceeds from the sale of his or her company has a different calculus to make to ensure that their desired lifestyle is within reach. “How you sell a business — whether it’s the entity or the underlying assets — will have different tax consequences that can drastically change the net amount you receive from the sale,” says Crilly. When there is a mismatch between the projected proceeds and the owner’s retirement goals, Crilly may advise the business owner to postpone the sale while trying to make the company more profitable, or to trim some retirement plans, such as buying a second home. “People at every level of wealth need the right information to help them make the choices that will keep them secure in retirement,” says Crilly.

Questions to discuss with your advisor:

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As you wind down your career

Congratulations — you’ve made it to retirement. Along with newfound free time, you may also be enjoying your largest ordinary-income year as you exercise stock options and receive deferred-compensation payouts. “If you have charitable intent and want to shelter income from taxes, you can achieve both goals by donating appreciated company stock to a donor-advised fund or to your private foundation,” says Crilly. “This strategy allows you to unwind a concentrated stock position, sidestep capital gains tax and get a large charitable tax deduction while funding gifts that will be disbursed through your lifetime.”

Whether you’re stopping work entirely or just pulling back, you might use your relative freedom to do a lot of traveling, visiting friends and family. You may also be thinking about relocating to be nearer to the grandkids or to live in a better climate. Moving from a state with low taxes to a state with high taxes, however, can create a tax burden on your income that you haven’t anticipated. You’ll also want to consider tax rules if you intend to maintain homes in multiple states; some maneuvering might be necessary to claim domicile in the lower-tax state and avoid multiple states labeling you as a taxpaying resident.

Questions to discuss with your advisor:

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Looking ahead to your legacy

In this phase of retirement, you’ve established a rhythm to your life and have more time to reflect on your legacy. Now you can finalize your estate plans, taking into account any changes in your family or circumstances. Perhaps you’ll give your children their inheritance now so you can see how they’ll fulfill their dreams with the wealth you created. “You may also want to involve your children and grandchildren in your philanthropic endeavors to pass on the legacy of your values, such as using the family wealth to give back to others,” suggests Carlson.

Transferring wealth involves a two-way conversation with your children to understand how they see their role as stewards of the wealth. One art collector in his 80s worried he would be depriving his children of inheriting his cherished modern art collection because they would be forced to quickly sell the pieces at a fire sale to pay estate taxes at his death. “But a conversation with his kids revealed that they didn’t share his interest in modern art or want his collection,” says Crilly. “That conversation freed my client to donate some pieces to charity and to thoughtfully choose the galleries and auction houses that would sell the rest of his collection at the right price.”

A father’s heart-to-heart talk with his daughter made him realize that it was his vision that she would manage the family foundation, not hers. “She was busy raising four kids and didn’t want to spend all her time attending fundraisers and charity events,” says Crilly. “Consequently, my client reduced his funding to the foundation and accelerated direct gifts to causes and institutions that were dear to him, such as his alma mater. That solution made everyone happier and maintained family harmony.”

While you’re in good health and before a crisis occurs, talk to your family about your wishes for future medical care. Decide if you want one person or multiple family members making healthcare decisions for you if you are no longer able to. Evaluate whether your current home is suitable for aging in place. Confirm that the individuals you’ve given power of attorney for healthcare and financial matters are still willing and capable of fulfilling the role. “Now is the time to make sure your wishes and objectives will be properly implemented after your death,” says Crilly.

But now is also the time to enjoy the fruits of your planning, hard work and good fortune. So put your feet up and enjoy the winners circle for a race well run.

Questions to discuss with your advisor:

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