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The 10 Most Important Years of Your Financial Life (& How to Prepare For Them)

The five years before and the five years after retirement can be a real minefield. A big loss during this time could spoil all your hopes and dreams, so here’s what you need to do to protect yourself.

Would you rather lose a third of your money when you’re 60 or 75?

I suspect many of you would choose to lose it right away instead of later. After all, it would be awfully scary to lose that much money at an age when it could be difficult to go back to work. But in terms of your investments, I think that’s the wrong choice. If you lost a third of your money at 75, you might be able to live out your life on the remaining two-thirds of your investments. To put it a bit bluntly, the older you get, the less work your money has to do because your life expectancy is shorter.

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When you’re younger, your money needs to do more heavy lifting to sustain you for the rest of your life. If you lose money when you’re 60, you haven’t just lost that money, you’ve lost its time value. You’ve lost the income your money could have generated and any potential gains for the next 20 or 30 years.

You can see why I believe that the five years before and the five years after you retire are the most important years of your entire financial life. Sustaining a big loss during the five years before you retire could delay your retirement. Sustaining a big loss during the five years after you retire could cause you to have to un-retire or significantly reduce your standard of living. If you’re looking forward to your retirement, neither of those options would be very appealing.

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Of course, I hope (and I’m sure you hope) you won’t lose money, and your retirement will be great. And though none of us knows when the next bear market could hit, there are some steps you can take to prepare yourself and your investments to weather these most important 10 years:

1. Figure out where you are now.

Are you ahead of the game? Behind? How much do you need to save? Remember, you’re in the eighth inning of your ballgame. This is your last opportunity to cut expenses and save where you can.

2. Visit your Human Resources department.

Find out exactly what benefits are available to you. Maximize every opportunity in the five years before you retire.

3. Make a plan for retirement.

  • Decide where you will live. Do you want to downsize? Move out of the city? Live closer to family? Consider a move carefully — you may spend the rest of your life in your new hometown.
  • Think about how you will spend your days. Do you want to travel? Spend time with the grandkids? Volunteer? Get out your bucket list and make a plan to cross off the items you really want to do.
  • Figure out how much money you will need to support the retirement lifestyle you want, then save. I agree with the principle of budgeting in general, but in my experience, cutting back on things you want to do usually doesn’t work. I suggest this approach instead: Decide how much money you need to set aside in order to save/invest for retirement. Start a monthly investment plan with that dollar amount. Once you’ve done that, spend the rest! For example, don’t cut out vacations: Look at your new budget, and see what type of vacation you can afford. It may be shorter, or it may be a three-star cruise instead of a five-star one, but you’ll still be able to vacation while saving for retirement.

4. Pay off your debts.

I believe that when you are retired, so should your debt be retired. If your investments don't do well, or if, God forbid, we have another Great Depression, you could be in big trouble if you are in debt. But no one can foreclose on a house that’s paid off. Being debt-free can make it much easier to get through tough times.

5. Reduce the amount of risk in your investments.

If you are over 50, I think it’s time to start playing defense with your investments, to try to preserve as much of your net worth as you can. Look at your portfolio: Is it diversified? I often meet with people who have a large percentage of their money in their company's stock. I understand why, but also think that an unbalanced portfolio is a risky one—what if that company took a tumble? I also believe you should adopt a buy, hold and sell strategy, one that can help you withstand bear markets. In my opinion, protecting your principal is your No. 1 job as an over-50 investor, and it’s even more important during the crucial five years before and after retirement.

About the Author

Ken Moraif, CFP®

CEO and Senior Adviser, Retirement Planners of America

Ken Moraif, CFP, is CEO and senior adviser at Retirement Planners of America, a Dallas-based wealth management and investment firm with over $4.3 billion in AUM and serving over 8,000 households (as of May 2019). He is also the host of the radio show "Money Matters with Ken Moraif," which has offered listeners retirement, investing and personal finance advice since 1996.

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