Retirement Planning



The last five years before you retire may be some of the most critical years in your retirement planning stages, as you must determine within that period whether you can truly afford to retire. The determination will hinge heavily on the amount of preparation you have done to date, and the results of such preparation.

If it is determined that you are financially prepared, then you may just need to maintain your program and continue on to your retirement goal being careful to avoid exposing your portfolio to unnecessary risk. If you are not financially prepared, then you may be looking at more than five years or a modification to your planned retirement lifestyle.

One of the primary causes of retirees being financially unprepared for retirement is because of incomplete retirement-needs analysis.

Retirement-needs analysis frequently takes the simple approach of including current income, current income tax rate and projected income tax rate during retirement, and assumes that an average of 70% to 80% of an individual’s pre-retirement income will be sufficient. With five years to go, you cannot afford to make that mistake.

HFG’s clients who are 5 years out from their expected retirement dates begin the following:

  • Evaluation of predetermined income such as pensions and Social Security
  • Reallocation of existing employer sponsored retirement plans such as 401k’s, 403b’s, profit sharing plans etc.
  • Employee stock options – nonqualified stock options and qualified, or “incentive,” stock options (ISOs). ISOs qualify for special tax treatment. For example, gains may be taxed at capital gains rates instead of higher, ordinary income rates. Incentive options go primarily to upper management, and employees usually get the nonqualified variety.
  • Monte Carlo Analysis – Simulations sample probability distribution for variables in retirement such as length in retirement, income needs and investment volatility to produce hundreds or thousands of possible outcomes. The results are analyzed to get probabilities of different outcomes occurring ultimately providing a percentage of likely success of the current retirement plan.