Here Is Why The Ten Years Preceding Retirement Are Critical

While retirement planning is a multi-decade process, how you handle your final decade before leaving employment will significantly influence how prepared you’ll be when that day comes.

This year has not been easy to manage, especially recently, as banking-sector turmoil has whipsawed equities and heightened worries of a recession. While the near-term picture is uncertain, the outlook improves as one looks farther ahead. BlackRock expects that a traditional global portfolio of 60% equities and 40% bonds will yield an average of 7.6% over the next ten years, while J.P. Morgan Asset Management anticipates 7.2%.

You can’t forecast the market’s future, so your preretirement checklist should concentrate on your asset allocation, savings rate, and contingency planning. When you rely on the market for retirement planning, you are placing too much faith in something you cannot control, says Gates Pass Advisors’ Chief Executive Officer Esther Szabo.

Adjusting Asset Allocation

It may be tempting to try to boost your returns when the market is underperforming. Yet, experts warn that there are better times to increase the risk in your portfolio than the run-up to retirement. Instead, Maddi Dessner, Capital Group’s head of global asset-class services, recommends focusing on the transition from wealth creation to wealth preservation. According to her, this entails a greater emphasis on higher-quality investments with a smaller range of outcomes and lower volatility. Consider shifting out of high-growth stocks and into income-oriented equities, and be mindful of high-yield, aka trash, bonds.

Experts recommend that investors strive for an asset mix of around 60% equities and 40% bonds within ten years of retirement, with diversification within those broad asset categories. Many retirees in the United States have an excessive allocation to domestic equities, which thrived during the tremendous bull market. Liana Magner from Natixis Investment Managers believes most participants are biased toward U.S. equities since that’s where they live and what they know. The market environment in recent years has made diversification more challenging.

It’s time to rebalance if you’re heavily invested in domestic stocks. Asset managers anticipate European and emerging market stocks to beat U.S. shares during the next ten years. According to Christine Benz, director of personal finance and retirement planning at Morningstar, a reasonable rule of thumb is to retain roughly 35% of your stock portfolio in overseas equities. She observes that international bond exposure is less essential.

Individual funds should include at least one stock fund and one bond fund instead of or in addition to a target-date fund, both of which should be diversified. If you hold a single stock fund exclusively invested in the S&P 500, for example, you are solely exposed to the shares of large U.S. corporations—a far too concentrated position. A “whole market” index in domestic and foreign versions allows you to invest in firms of all sizes.

For more information about asset allocation, click here. It’s also essential to consider how your retirement funds will be converted into a monthly income stream. You should do so now if you have yet to engage with a financial advisor. When withdrawing money in retirement, the decumulation period is far more problematic than the accumulation phase. An adviser can assist you in determining how much you can afford to remove from your retirement account each month. Throw in predicted Social Security payments and any other income streams to know how much money you’ll have each month.

Health planning

Hedging your health planning is crucial, but you should know that Life may toss your plans out the window. One-third of workers who retire sooner than expected do so because of health problems or disabilities, according to the Employee Benefit Research Institute. Consider disability insurance coverage that may replace up to 80% of your income to protect yourself against this scenario. This will assist you in avoiding having to withdraw from your nest egg sooner than expected or claim Social Security at age 62, locking in benefits that are 30% lower vs. waiting until your full retirement age of 67.

Many workers ignore disability coverage, even though, according to the Social Security Administration, more than 25% of persons become incapacitated before age 65. Social Security provides disability benefits, but meeting the qualifying standards, which require claimants to be unable to conduct any paid job, is challenging.

The standard for commercial disability items may be lower. If your company does not provide one or the current plan does not cover a sufficient portion of your income, an independent insurance agent can assist you in purchasing a stand-alone policy. According to Life Happens a charity that educates customers on insurance alternatives, individual long-term disability insurance generally costs between 1% and 3% of your yearly wage. Earners with seven-figure incomes and substantial yearly bonuses may also want to look into high-limit disability insurance, which is placed on top of a conventional policy and can provide lump-sum benefits and greater income ceilings.


As companies attempt to shrink, older workers are disproportionately targeted for layoffs. According to the E.B.R.I., 23% of individuals who resigned earlier than expected did so owing to downsizing or other firm reorganization, while 19% were awarded an early-retirement payment. Individuals impacted may be eligible for unemployment benefits from their state, although payments are unlikely to match their prior earnings and typically end after 26 weeks.

Your job stability may be out of your control, but that’s all the more incentive to max out your retirement savings while you can, taking advantage of the catch-up contributions available to employees 50 and older. For 2024, the 401(k) contribution limit is $22,500, with an extra $7,500 for individuals 50 and over. This is also the time to pay off any credit card or other revolving debt so it doesn’t become a burden in retirement. Pay equal attention to the liabilities side of your balance sheet as you do to the asset side, advises H. Jeffrey Spivack, vice president of Citizens Bank Wealth Management.

You may also lose your employer-provided group health insurance if you lose your work. According to J.P. Morgan Asset Management, a nonsmoking 64-year-old can expect to pay $1,071 a month for a silver-tier individual plan in 2024 (You may be eligible for income-based premium subsidies if you meet the criteria). That’s the type of unforeseen expense that necessitates emergency funds.

Emergency Funds

According to a recent Voya Financial poll, 43% of Americans believe their retirement savings plan is their sole substantial source of emergency funds. Apart from a few exceptions, withdrawing from a typical 401(k) before 59.5 will result in a 10% penalty plus ordinary income taxes. In addition to a short-term financial setback, your retirement funds will lose long-term stock market returns.

Financial gurus recommend that employees retain three to six months’ worth of spending in a liquid account in case of emergency to avoid depleting their 401(k) or incurring credit card debt. Pre-retirees should strive for a little more, or six months to a year’s worth of spending in cash reserves, in case they have to retire sooner than expected.