How To Manage Your Money in the Pre-Retirement Phase vs the Retirement Phase

Mark Elliot: Glad you’re with us today for the retirement income show with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. Troy also a certified financial planner professional. Again, you can always go to the YouTube channel. A lot of new stuff is always there, over 300 videos now. Financial world, retirement world, questions that you may have a lot of great information on the YouTube channel. Just search Troy Sharpe at Oak Harvest. You can always go to the website to learn more,

There’s a lot of moving parts in the financial world all the time. From March of ’09, when the Great Recession ended, the markets were on a roll. Then we get to 2020. We have COVID. We have a five week period where the markets went down over 30%, but it was a quick recovery because it wasn’t caused by the banking or housing industry, like the oh seven to oh nine different type of thing. Then we get to 2022, Troy, and the markets get really bumpy. We had a pretty good July. The markets bounced back a little bit, but you’re going to talk about the rest of this show, how to manage your money in your pre-retirement phase and also in your retirement phase. Are they different scenarios?

Troy Sharpe: Yes, they’re entirely different. I guess I shouldn’t say entirely different, but there are some significant differences when you’re in that pre-retirement phase versus the accumulation phase. I’m generally not a fan of broad definitions or terms that describe certain time frames or certain events. For example, someone has, for whatever reason, deemed that if the markets go down between 10% to 20%, it’s a correction. If more than 20%, it’s a crash, or something along those lines. Generally speaking, the 4% rule, that was developed in the late ’70s.

I’m not a fan of general statements. When I talk about, because we don’t believe in the 4% rule here, it can be a guideline, but a dynamic spending plan in retirement. I’m not going to go down this rabbit hole, but instead of just taking 4% out and then adjusting it for inflation, a dynamic spending plan is far more, in my opinion, strategically important to follow that path as opposed to just this random 4% rule unless you’re just like everyone else in the world and you need no customization and you have no differences in your retirement than your neighbor.


When you look at the significant differences between the pre-retirement phase planning and the retirement phase planning, there’s a couple big ones we want to point out, but before I do that, I want to put some broad ranges here on what ages I’m referring to when I talk about this. It’s not necessarily ages, I should be clear, the pre-retirement phase from our perspective refers to the time frame, the number of years, before you plan on retiring.

Let’s call it the within 10 years of retirement, once you get to that estimated 10 year part, you’re really just entering that pre-retirement phase. Unfortunately, the light bulb moment doesn’t happen for most people until they get about a year away from retirement, six months away from retirement or even in retirement, and they don’t realize how big of a difference that stage of life is from a financial planning perspective, than the accumulation years.

Most people just think, “Hey, I’m accumulating.” I think innately, we do start to feel, “Hey, I’m getting closer to retirement. Should I reduce risk? Should I be doing something differently?” but then something happens with the kids. Something happens at work, that thought escapes your mind. Then you’re just continuing along the path that you’ve been on, all that time.

Rarely do I have someone reach out to us that says, “Troy, you know what? I’m in that pre-retirement phase, I’m about eight years away. I’m really starting to think about where I’m going to get my income from. Do I have enough? How can I make it last my entire life? Really interested in how I’m going to plan for healthcare in retirement. I really want to pay less tax. Is there something I should be doing now?”

Rarely does somebody come in and ask us those questions eight years away from retirement. They should, they absolutely should because there is a tremendous amount of work we could get done in those eight years. Those are the types of questions that we get when someone is three months away from retirement and they give us a call or they just retired, or been retired for maybe a year or two. We still can do an amazing job planning as far as the different paths and avenues that we can talk to you about in order to improve the probability of success over time when it’s just a year or two years away from retirement or you’ve just retired.

The more time that we have to work and to plan and to adjust and to have conversations and dialogues and challenge your train of thought or challenge things that maybe you’ve read or heard or always thought to be true– You have to understand, we’ve sat with thousands and thousands of people, we’ve helped thousands and thousands of people navigate this retirement phase. This is all I’ve done throughout my professional career. There is insight that we can impart when we have these discussions with you based on things that we saw actions clients took 8 years ago, 10 years ago, 12 years ago and seeing those through over the time frame.

We don’t work with all age groups. We don’t have clients that are in their 18 or their 18, 19, 20, 25, 30. We are specialists in the retirement phase. When we get to the pre-retirement phase, let’s call it the 10 years or so before retirement. This is where we take, by the way, this is Troy Sharpe, the retirement income show here at Oak Harvest Financial Group, talking about the pre-retirement phase and how it’s different from the retirement phase. One of the big questions we want to identify there’s a few here, but one of the big ones of course is not just how much have you saved, but where have you saved those dollars? Then what is the saving strategy moving forward?
Think about this in terms of the types of accounts that you have and the monies that you have in those accounts. Let’s say you’re 50 years old. You want to retire at 60 and you’ve saved up, let’s say $700,000. Where is that money located? For most of you, it’s going to be inside the 401k. Now, have you ever given thought to what happens when you retire? When you take income out of that account, how much will be taxed? The answer for 99% of you is probably no, you’re focused on saving as much as you can and dealing with your life because life is complex in your 30s and 40s and 50s.

You have children, you have a ton of responsibilities, you’re in and out. You’re just so busy that these types of thoughts don’t run into the typical person’s mindset. Whereas our mindset on the retirement planning side, this is all we think about all day long. If someone were to come in in that age group, this is first and foremost one of the things that we’re going to be looking at whenever we do an analysis and that’s, how much do you have saved? Where do you have that money saved, and then what is the best saving strategy moving forward? If you have that $700,000 inside the 401k, does your 401k have a Roth option?

What is your current income? Most importantly, your taxable income, because we want to identify what tax bracket you’re in and then start to do a cost benefit analysis of possibly shifting some of those dollars into the Roth part of your 401k. If you don’t have– and for those who don’t know, the Roth part of the 401k is their tax free part, meaning you pay taxes on those contributions today. All of that money grows tax free forever, and then it’s tax free forever. Now you may not have a Roth option inside your 401k. We may have to look to see if you can save outside in a Roth IRA, but there are income limitations.

There are contribution limits. There are certain factors that we need to make sure you qualify for if you’re going to get money inside that Roth IRA outside of the workplace retirement plan. Now, once we have those things identified, we need to consider, does it make sense to also start saving money outside of retirement accounts altogether? One of the big mistakes a lot of people make when retiring at 60 is they’ll come in. They say, “Troy, I have $3 million and I’m ready to retire. Do I have enough?” We’ll go through the analysis, go through all the proper steps.

Okay, yes, you have enough to retire. Here’s the bad news. Your health insurance premiums are going to cost $24,000 a year on top of your $100,000 spending goal. Now, if they had done a proper job saving up to that point, we could have put them into a position to where health insurance premiums are absolutely zero. How do we do that? One of the biggest concepts to understand about the retirement phase is for the first time ever, you get to determine what goes on your tax return.

If you take money out of your retirement account, every single dollar you take out has to go on your tax return. If you have money saved up in non-retirement accounts, let’s call it bank, savings, checking, or an investment account, a non-qualified investment account, we can pull money from there. We can manage the taxation of that account, so you have the income you need to spend and to live your life in that first year, second year, third year, so on of retirement, but none of that, or a very small amount of that could potentially go on the tax return.

Then when that happens, okay, now you qualify for a subsidy that will pay for all of or most or a good potion of your health insurance premiums. That’s one of the big questions we really want to start to look at, how much have you saved? Where have you saved? What should be the saving strategy moving forward if you’re in that pre-retirement phase if someone comes to see us before they’ve already retired? Oak Harvest Financial Group, go to the website, reach out to us, have a conversation. Let’s see if we can help you get started so we can build out that retirement success plan for you.
Mark: 800-822-6434 more with Troy Sharpe the CEO and founder of Oak Harvest Financial Group right after this.

Speaker 1: Oak Harvest Investment Services is a registered investment advisory firm. Troy Sharpe is an investment advisor representative and insurance professional. Investing involves risk, including the potential loss of principal.

How To Manage Your Money in the Pre-Retirement Phase vs the Retirement Phase
How To Manage Your Money in the Pre-Retirement Phase vs the Retirement Phase

How you manage your money in the pre-retirement phase (up to 10 years before retirement,) and the retirement phase is very different. In this episode will take a look at a few of those differences, and what you should be thinking about while in each phase.