Planning Your Journey Towards Retirement

In this article: Planning for retirement can be difficult. Zoe’s Five Phases of Retirement splits your journey towards retirement into five distinct phases throughout your life.

Published Aug. 05, 2020

Reading Time: 4 minutes.

Shocking as it may seem, more than half of Americans (56%) don’t know how much money they’ll need to retire. Research published by Schwab Retirement Planning Services found that on average, individuals with 401(k)s believed they needed $1.7 million in the bank to retire comfortably, yet exceedingly few were on track to get there. It’s partly due to the lack of a clear definition when it comes to planning for retirement. Robert Weiss, author of The Experience of Retirement, put it best: “Defining retirement can be surprisingly difficult. [Retirement definitions] assume that a person older than his or her mid-fifties is retired if he or she does not work, or at least does not work for money.” Planning for retirement over the course of your life can be especially challenging, regardless of your current life stage, as there’s no single best way to create a nest egg

Planning for Retirement Isn’t One Size Fits All 

With a comfortable retirement being a universally desired goal, you’d think there would be more literature on how to achieve it. At Zoe Financial, we combed through mountains of academic papers, government demographic studies, institutional research, and more. Yet, we quickly found there is no single source of truth on planning for retirement. In fact, nearly every person searching faces the same conundrum. There is no clear way to understand how your financial decisions and habits will ultimately help you while planning for retirement. 

Part of the reason it is so challenging to find a clear guide to retirement is because how you approach retiring depends largely on how your emotions, values, and finances overlap. There is no “one-size fits all” approach. 

Retirement Planning

When you draw your own path alongside a holistic framework, planning for retirement becomes far less ambiguous and can instead become second-nature. Instead of being a cause of stress, retirement becomes a pleasant journey instead of a race to the finish line.  

Planning for Retirement At Any Age

Retirement used to mean you stopped working, but what people really mean when they think about retiring is having the financial independence to do whatever they’d like. Retirement doesn’t mean you stop working, rather it means you have the financial independence to not have to. That said, financial independence doesn’t come at the flip of a switch though. It’s something you actively work towards throughout the different phases of your life, regardless of age.

“What people really mean when they think about retiring is having the financial independence to do whatever they’d like.” 

As Schwab’s research showed, many believe that by simply saving throughout their lives, that’ll be enough. What traditional retirement planning often gets wrong is assuming that you should be following a certain savings “rule of thumb” at a particular age. However, the stages of your life aren’t dictated purely by age but rather on unique experiences that can’t possibly be summed up with a simple rule of thumb. 

While some people think of retirement as an isolated dot on the map to be reached at a prescribed point, it’s more like an interconnected line in which each of those particular experiences (financial and otherwise) connect towards a goal. Preparing for retirement as an active journey instead of a single destination point can make it feel exciting, as opposed to nerve-wracking and burdensome. In order to plan for retirement holistically, begin by identifying which phase of your journey you’re currently at. 

Planning for Retirement in Five Phases

Every individual’s emotions, values, and finances are unique. Zoe’s Five Phase Retirement Framework splits your journey towards retirement into five distinct phases throughout your life. This way, your retirement planning phase always aligns with your specific situation.

Phase 1: Earn

Retirement planning is often centered on the principle of “spend less, save more,” but this advice often falls short when retirement feels distant. Phase 1: Earn, discusses the value of maximizing your earning potential. The Earn Phase is most appropriate for individuals who are only just now setting off on their adventure into preparing for retirement and want to learn how to earn more, to save more. 

Phase 2: Save

Once you’ve maximized your earning potential, Phase 2: Save, comes into play. Learn how to “find your sweet spot” in terms of saving. Additionally, discovering what kind of saver you are can make a big difference in your retirement foundation. The Save Phase is about how to ensure you’re approaching saving towards your retirement effectively by selecting the right retirement savings account (Employer-Sponsored Retirement Plan such as a 401k or 403b or an Individual Retirement Account IRA), all while keeping an eye out for lifestyle creep. 

Phase 3: Grow

There comes a point when your monthly savings contributions just don’t make a substantial dent in your nest egg. This is when you need to switch gears towards Phase 3: Growth. The below chart looks at a nest egg’s growth driver over 40 years. 

What drives nest egg growth?

At first, it’s clear growth is driven by contributions, but as time passes, the account value is overwhelmingly driven by the compounding of your investments. The Growth Phase focuses on growing your wealth by allowing compounding to do the heavy lifting, understanding asset allocation, risk capacity and risk tolerance, tax implications, and being aware of potential underlying costs in your investment portfolio. 

Phase 4: Transition

Traditional retirement planning often doesn’t include Phase 4: Transition, despite it being absolutely essential. In the Transition Phase, you’re dipping your toes into the retirement pool instead of diving in headfirst at a predetermined age. Your transition into retirement is the most inherently unique as it will depend on existing savings and investments, health conditions, income, and a multitude of other factors. A fiduciary financial advisor can be helpful during this phase, as they can help you avoid sequence of return risk and other costly mistakes as you begin phasing into retirement. 

Phase 5: Preserve & Enjoy

Time to kick up your legs and enjoy! Phase Five: Preserve and Enjoy, provides essential strategies to ensure you don’t have to worry about your finances in retirement. Learn how to establish a realistic retirement income plan through frameworks including the Buckets System, Target Risk Portfolios, and Target-Date Funds. Additionally, in the Preserve and Enjoy Phase, you’ll want to understand required minimum distributions (RMDs), and how much/from which accounts you should withdraw to live off without being concerned about outliving your money or relying entirely on social security or pension

In this series, we’ll dive deeper into each of these phases and how they relate to your unique retirement planning journey. To identify which phase suits you best at this point in your life, as well as to learn actionable frameworks and strategies, download your free copy of our latest cost-free guide, The Road to Retirement

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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