The Retirement Red Zone: 5 Critical Decisions in the 5 Years Before Retirement

If you're within 5 years of retirement, this episode is essential listening.

Stewart Smith (LUTCF®, RICP®) and Mitch Davies cover five critical planning areas in the Retirement Red Zone where portfolio positioning, tax strategy, healthcare, and income decisions intersect.

In This Episode:

• Sequence of Returns Risk — Portfolio protection strategies for market downturns
• Tax Conversion Window — Roth conversions without triggering IRMAA or SS taxation
• Medicare & IRMAA Planning — How today's income affects healthcare costs in 2 years
• Withdrawal Strategy — Which accounts to access first and why sequence matters
• First Five Years — Why early retirement decisions impact 20-30 year sustainability
• Market Analysis — Current trends and what retirees should watch
• Long-Term Care — Hybrid alternatives to traditional insurance

Timestamps:

0:00 - Welcome & Introduction
0:52 - What is the Retirement Red Zone?
1:46 - The 5 Critical Planning Areas Overview
3:07 - About ClearPath: Veteran-Owned, SC-Based
4:25 - Topic 1: Sequence of Returns Risk
6:30 - How Market Timing Affects Your Retirement
9:15 - Structuring Income for the First 5 Years
12:40 - Topic 2: The Tax Conversion Window
14:20 - Roth Conversion Strategy & Timing
17:45 - South Carolina Tax Advantages
21:30 - Topic 3: Medicare & IRMAA Planning
23:15 - How Income Affects Medicare Premiums
26:00 - The Two-Year Lookback Explained
28:45 - Topic 4: Mitch's Market Minute
30:10 - Current Market Analysis & Volatility
32:40 - Rotation from Tech to Consumer Staples
35:20 - What Retirees Should Watch
37:50 - Topic 5: Retirement Income Structure
39:15 - Withdrawal Order Strategy
41:30 - Which Accounts to Access First
44:10 - Coordinating Social Security with Withdrawals
46:17 - Long-Term Care Planning Considerations
47:24 - Hybrid Products vs. Traditional LTC Insurance
 

Download the Retirement Red Zone Guide: Visit www.clearpathretirement.com to download our free PDF covering these 5 critical planning areas.

Ready to stress-test your retirement plan?

ClearPath Retirement Planning helps retirees and pre-retirees in the Upstate SC and Columbia areas create tax-efficient retirement income strategies. 

📍 300 Executive Center Drive, Suite 104 | Greenville, SC 29615
 📞 (864) 775-5033

Schedule your complimentary consultation today at www.clearpathretirement.com

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Important Disclosure:

Investment advisory services offered through Alphastar Capital Management, LLC, a SEC-registered investment adviser. SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Fixed insurance products are offered through Clearpath Retirement Planning, LLC and Alphastar Capital Management is not involved in the offer, recommendation, sale or management of commission-based fixed Insurance products. Alphastar Capital Management and Clearpath Retirement Plannin...

Transcript

The Retirement Red Zone: 5 Critical Decisions in the 5 Years Before Retirement

[00:00:00] Welcome to ClearPath Retirement Radio. From retirement income and tax planning to protecting the savings you've worked a lifetime to build. This is real world financial talk designed for real people, people who want clear answers, not sales pitches, so you can make informed decisions and plan for retirement with confidence.

Now, here are your hosts, Stewart Smith and Mitch Davies. Well, hello there upstate. This is Stewart Smith with Clear Path Retirement Planning and welcome to Clear Path Retirement Radio. I am here with Mitch Davies, my co-host. How are you today? Good morning. I'm doing great, man. How are you? Excited to be here.

Doing good. Doing good. Well, man we are going to have an interesting show for you today. We are going to be talking about what we refer to as the retirement red zone. What is the retirement Red zone, Mitch? Yeah. I'm excited for this one. Stewart. You know, the retirement red zone is this five year, [00:01:00] uh, range right before retirement leading up to retirement that really sets the stage for retirement.

You know, we call it that red zone if you like football, it's that, 20 yard line, you're getting ready to punch it in and it really sets the stage for what retirement's gonna be like and we think there's a lot of critical planning to, there's, there is a lot of critical planning to be done in that time.

We call it the red zone and we, uh, we're excited to talk about it today. Yeah. I think this five years is so critical to whether you. Fail or succeed in, your retire living, the retirement you really want to live. Absolutely. And so what we're gonna do today is we're gonna talk about things that need to be on your radar in that five years leading up to retirement and you know.

Basically just to kinda lay it out here, that we're gonna address what we call sequence of returns risk. We're gonna talk about, uh, the tax window that's so important where you need to be looking into things like Roth [00:02:00] conversion opportunities, um, in that window between retirement and when you have to start taking required minimum distributions.

We're gonna talk about Medicare and the, IRMAA planning around the Medicare premiums and, and things that you need to be thinking about there. We're also gonna be talking about, you know, how to structure the income in retirement and things like withdrawal order and what accounts to access when.

And how investing changes in retirement because it does change and you need to be, be keyed in on how that works. Um, the final thing we're gonna address is the three stages of retirement and, um. Maybe some things that you need to be thinking about in that five years, like planning for long-term care issues and, and God forbid you need skilled nursing care and that sort of thing on the back end of retirement, which is pretty [00:03:00] common nowadays.

That's right. This is gonna be fun. And what we want to do is start off today. Um, before we get into sequence of returns risk. What I want to talk about real quick is just to let you guys know that we are a veteran owned local retirement planning firm here based in the upstate of South Carolina.

I think that's important for folks to know a little bit about us and, and our background. I'm Stewart Smith. I've been helping folks retire for. 25 years now and have learned quite a few things on the way. And Mitch is young but brilliant and has been right by my side. He is been my right hand for the last three years and has learned a lot from me.

He is very qualified. Has a lot of great ideas about helping folks retire. So we are just here to share what we do, how we do it every day, hoping that we can help you guys. Is, you know, think right? And, [00:04:00] and as you approach retirement and really put things on your radar that really are gonna matter.

That's right. And I'm glad you brought that up, Stewart. We're both South Carolina natives and, we love the Greenville area. We're excited to be here and continue to grow here and continue to grow our practice and continue to grow alongside Greenville. Greenville's got a lot of exciting stuff coming up, a lot of exciting expansion, and we, uh, we're excited about the city. Yeah. Alright, let's jump in here. So the first thing that we want to talk about the things that you need to be thinking. Again, just to recap the five years before you retire, the things that you really need to be focused in on. And you know what, what we like to say is retirement is not an event, it's a transition.

So retirement, I is a transition in life and it's it's very complicated. It, there's a lot of emotional things going on there and you know, we're not gonna focus on that today. We're gonna focus on the financial side of it, but it is a [00:05:00] major transition for folks. And so as you approach that retirement red zone, the first thing we're gonna, we're gonna address is something we call sequence of returns risk.

And. What sequence of returns risk really means is, you know, we don't know if we're gonna retire in a good market or a rough market, right? Yeah. Yeah. And so sequence of returns addresses the idea that. When folks decide to retire and they, they pull the trigger on that, they don't know if they're gonna be looking at, at markets that are, are going up or markets that are going down.

And if you take significant losses to your portfolio and the first say, five years of retirement, then what that does is that can devastate the back end of your retirement. And really you have less money to [00:06:00] earn interest on. Yeah. And to grow. To give you an, an idea of what we mean is, think of it this way.

If you have money, all of your portfolio is invested in the market and you are depending on drawing income off of that portfolio. And so you're pulling income from that portfolio and simultaneously the market takes a significant correction like it did back in 08', 09', where people lost 38% or more of their portfolio very, very quickly.

Then what that does is it gives you now 38% less money to work with. And not only that, but you're having to continue to draw that income off of that, that those investments that are in the market, which is kind of the double whammy, right? Yeah. And that really, really can impact the back end of your retirement and make you run outta money a lot faster than than you [00:07:00] normally would have.

So what we want to do is what we would recommend and how we gonna structure things at ClearPath is we are going to structure it where you. You are taking income in that first five years of retirement from a source that is not going to fluctuate very much. Right, right, right. So that could be a lot of things.

And you know, we we're not going to, um, to get into too much detail on, on that. But just understand that if you have that money for the first five years of retirement, invested in a very, very safe portfolio. Maybe treasuries, maybe you know, things that are not gonna fluctuate with the market very much or can't lose principle.

You are able to take money, you're the income that you need from that stable source, then [00:08:00] you are not gonna be so driven by fear if the market starts to make a major correction. Because what happens is if you are pulling money from, from accounts that are invested in the market and they are taking significant losses, you're going to make bad decisions out of fear.

You will. And this is the biggest adjustment that we see is. You have to shift your whole mindset. You know, in the accumulation years, in the early years of investing, when you've got your retirement account, and that's a significant asset, and you are contributing to that each, you know, each month and your employer's contributing, you're getting a match.

You are, you're not able to touch that account, so you're 59 and a half. So you know when there's. Fluctuation in the market, it may affect your overall day-to-day living a little bit with inflation, but you're not concerned about the investments as much generally. But when you step into retirement, you know this sequence of returns risk is first introduced, and it's really a big mental [00:09:00] shift that you have to understand.

Again, when you're in that early phase, you're just continuing to contribute, continuing to grow. If it fluctuates, it's okay, but that's the hardest shift. And under having the peace of mind, whether this is something you understand at a high level or not having the peace of mind knowing that, okay, anything that happens in the next few years.

The money that I'm using, the money that we're living, that we're paying, the mortgage, that we're paying, the food that we're taking, the trips that we're living off of in those years of retirement is coming from a stable source. It opens up so much just freedom and flexibility to really enjoy retirement because you didn't work.

30, 35 years to spend the first three years watching the market. Right. That's, that's not what retirement is. That's not retirement. No. I can tell you that when we see that, that case, we see people who are stressed, we see people who are, watching every, you know, checking their account balances every day and just, you know, so on pins and needles about what is the market doing today.

And I, I can tell you that is not. The way [00:10:00] you want to live your retirement. We. Are definitely able to, through good planning, we're able to alleviate that stress. We're able to help you understand these concepts that we're explaining to you and get you to a place where you can go do the things you wanted to do in retirement.

You can go, you know. Play with the grandkids and take those trips and do all of the things that, that you had, the dreams you had for retirement and not be so focused on, checking your account balances every day. And again, that's just, that's no way to live in retirement. We have a very set process on how to do this stuff, and if you think that, going through a process with our team and having us look at the big picture for you, having us to just to lay out a real plan that's gonna alleviate that stress for you, go to clearpathretirement.com, [00:11:00] get click on the Get Started button.

Now let's get an appointment set up. Let's sit down and just have a conversation. Yep. We just want to talk about big picture stuff with you, show you what kind of services we can provide you, show you where we might can bring value to the table and what you're doing. And if you don't like what we have to say, we'll shake hands and be friends.

Right? That's right. But I can tell you that having a real. Clear cut plan is the way to go into retirement. We'll be right back folks. Hey, are you approaching the distribution phase of life where it's time to turn the assets? You've worked so hard to accumulate into a reliable retirement income, and are you unsure how to do that in the most tax efficient way possible?

At ClearPath retirement planning, we help retirees and pre-retirees design income strategies. That aim to reduce taxes, manage risk, and create confidence in retirement. Visit clearpathretirement.com to schedule a complimentary [00:12:00] consultation. Thanks for tuning in to ClearPath Retirement Radio with Stewart Smith and Mitch Davies.

Let's get back to the show. Welcome back to ClearPath Retirement Radio. I'm Stewart Smith here with Mitch Davies, and today we are talking about the retirement red zone. We're talking about that really critical five years. Prior to actually pulling the trigger and starting your retirement and the things that you need to be focused on, and really, the things that can help you tremendously as you get closer to actually retiring.

And the first thing that we talked about was se sequence of returns risk and how, how you might can address that issue. The next thing we want to talk about today is, you know, the tax window that you have and how that shrinks on you pretty quick. It does. You know, there's some strategies out there that you need to be thinking [00:13:00] through as you approach retirement.

Because between the years that you retire and the time that you have to take, require minimum distributions, right? The money that the government says at some point, and for most of you folks out there, it's gonna be age 73. Where if you've enjoyed pre-tax accounts that are tax deferring until you actually pull the money, like IRAs Yep.

And 401Ks, at some point the government says to you, Hey, look, you've enjoyed tax deferral long enough. Now you're gonna have to start taking a little bit of that money every year. And paying taxes on it because we're ready for our share. Right, right. And that's what required minimum distributions are.

So in that time period between when you actually retire, and for most people in the, you know, 60 to 65 range, and that 73 mark where you have to [00:14:00] start taking those required minimum distributions is a real. Opportune time for you to employ strategies like Roth conversions and, to talk a little bit about Roth conversions and how we kind of structure those.

Sure. So, and this, this kind of planning is becoming more and more important as the year, years go on. You know, we're seeing, we're seeing. Later retirements, we're seeing the full retirement age, the age where you get the, you know, full retirement from your social security that's continuing to push back, right?

We're seeing the RMD requirement age continuing to push back. So we're seeing later retirements and we're seeing a lot of partial retirements where one, maybe one spouse is continuing to work while the other one isn't on Medicare. So the point is we're seeing a lot of. A lot of later retirements and a lot of more complicated retirements.

So this type of planning is more important than ever. And you know, the first thing we wanted to talk about is, again, that Roth conversion window. We like to say before, you know, if you're in a situation where you can take [00:15:00] some of that money that you've never paid taxes on, go ahead and convert it before they start making you pay taxes.

You're gonna have to bite the bullet, pay the taxes now. But what that's doing is setting you up for a much simpler backend of retirement. This is where the backend is where we want things to be. Really simple. You know, we'll talk about this later, but at the beginning we're gonna be spending the money and enjoying the time and traveling.

We want the backend to be really simple. We don't want to be, have to deal with RMDs from all these different accounts. So if we can go ahead and convert some of that. We don't know what the tax picture's gonna look like in 10, 15 years. There's a lot going on in the world right now, and historically we're at a pretty low overall tax rate if you look at the highest tax bracket we've had in this country.

So considering that, if we're all of the same mind that taxes. Don't have much room to go down, probably up. And the fact that we have to take money outta these accounts anyway, what we're doing is, and just wanna put this on your radar, is to go ahead and start converting some of that. There's no limit, right?

People get, you know, confused with this. There's a limit to [00:16:00] how much you can contribute to a Roth account. You have to have earned income. But as far as taking money that. Never paid taxes on paying the taxes and moving it over to the Roth. That's a conversion and there's no limit. So this is a strategy we've been using in the last couple years, probably more than ever, is implementing these types of things.

And it's been huge for clients. Absolutely. And I'll tell you one analogy I like to use is, you know, the best time to convert accounts is when the markets are down. So keep your eye out for, you know, those the times and, and right now is probably a pretty good, pretty good time. We've had some, you know, we've had some, some definite uh, corrections here lately.

Yeah. Especially in some of these tech names. Yep. But basically, if you think of it like a slinky, like the, the slinky used to play with when you were a kid. Think of, you know, when the markets are down, that slinky is compressed. Right. Right. And at at that time, if you were to do a [00:17:00] conversion, you're still converting the same number of shares.

They're just worth less for the moment. Right. Okay. And then what happens in down markets? What happens typically coming after a down market? Usually a recovery at some point, a recovery, right? So if you convert while that Slinky's compressed, and then when, when the recovery does come, you're in that no tax environment and you don't pay taxes on the growth, and that slinky expands in the tax free market.

Yeah, man, that's, that's a super win for you. It's huge. And then the other thing that you have to think about in this whole scenario is, you know, with the one big beautiful bill act that passed, you know, we've got the people over 65 have the extra $6,000 standard deduction that they can take advantage of right now.

That's as long as you're not over income thresholds of 75,000 for a single person or 150 for a married couple. [00:18:00] You are gonna get that extra, you know, six. 12,000 for a married couple, um, standard deduction, which gives you even more room to consider these Roth conversions. So this is something that needs to be on your radar.

You need to be thinking about this because Roth conversions cannot only save you money, in the, in, in the whole retirement picture because you've gotta look out again. 20, 25, 30 years of retirement, it can save you money, significant money in taxes, but it can also done correctly. It can help you avoid IRMAA where you're gonna be paying a higher, you know, part B premium later on.

As those RMDs grow, it can save you from having to pay. Taxes on your social security later on. I mean, there's a lot of moving parts here. There's a lot, there's a lot that, that these Roth conversions can impact. So, you know, let us take a look at it. We, you know, we have some, [00:19:00] some really complicated software that we've had to really work hard to master here.

That really models out what these Roth conversions can do and shows you all the moving parts, including IRMAA, including taxes on social security, including, the tax savings and, and what it can do for you and the long term. And really definitively help you decide is, does this Roth conversion strategy really make sense for me?

And that's something our team can do for you. And we can sit there and model through these Roth conversion and make sure that you're doing the optimal conversion strategy, converting exactly the right amount every year to stay below certain thresholds and to not, you know, push yourself over these thresholds to pay more taxes than you need to be on Social security.

And IRMAA, you know, we can really make sure that you're optimizing these things and, you know, a lot of people who have been very confused [00:20:00] about, you know, I just don't know if I should be doing this. They've come into us with, they've sat with the team, we've. We've structured these things and shown them, and then they can confidently go aggressively after this Roth conversion strategy and know that they're doing it the right way.

Certainly. And there's, there's a huge difference between understanding a Roth conversion, understanding it's available. And you know, we've had people come sit across the table and they say, Hey, I was with. You know, so and so advisor prior to this and you know, we just, we took 200 outta the IRA and we converted it, right?

They just throw out these almost arbitrary numbers and, you know, it's fine. It's probably beneficial, but there's a huge difference between just doing a Roth conversion or just doing these things and having a clear plan that we've sat there and modeled through down to the. Dollar to understand, okay, for the next seven years, we're gonna follow this schedule.

It's gonna have this tax implication, it's gonna leave us in this tax bracket. We're gonna pay this amount of Medicare premium. It's gonna set up the kids and the grandkids to have this amount of tax free [00:21:00] money. This stuff is powerful, and this is the kind of planning that is so important to do. You know, it's as you get closer to retirement and into your later retirement.

More tax implications just seem to open up. You know, that's supposed to be a time where life's getting simpler, right? Yeah. And it just gets more complicated. Yeah. When you're in your early years, there's really not much. You got your standard deduction, you have your earnings, you contribute to the accounts.

But as you get older, all these things open up with social security with required minimum distributions. With all this sort of Medicare, there's so many things opening up and it, what it does is creates a lot of planning opportunities that aren't there in the early years. So again, like Stewart said, if you've never had a team sit there and really look at all these different things and find, there's so many things you can optimize and so much.

Money to be saved on the tax picture. If you've never had a team model through these things, I would highly recommend it. Give us a call at (864) 775-5033. It could be huge. Huge for the plan. Absolutely. And the other thing that, [00:22:00] that we see is that a lot of folks who do these Roth conversion strategies correctly, you know, they end up.

As opposed to leaving, you know, their heirs taxable money, which, you know, we say, would you rather leave them tax free money or a tax problem? Yep. Right, because you know, it is great when you can leave them just. Pure tax free money. Right. Great. That doesn't impact their tax situation whatsoever. And that is just money that, that they can, you know, use at will when they need to, to do what they need to with no tax implications whatsoever.

And a lot of times, you know, the Roth conversion strategy is the greatest. State planning tool. Yeah. To make sure you are leaving tax free money to your heirs. And I can tell you that you know, a lot of people that's they highly desire, um, making sure that that is the case, that they leave their heirs in a [00:23:00] really beautiful tax situation that way.

So, yeah, like Mitch said we have a PDF, that is outlining what we're talking about today and the five major things that you need to be thinking about as you approach this five year window before retirement. If you'd like to get that PDF and, um, you can go to our website, clearpathretirement.com.

It's right there on the homepage. There's gonna be a link that you can click. To download or get, I believe he emails it to you. The PDF of that, that outlines the stuff we're talking about. If you think that'd be helpful for you, yeah. Go to clearpathretirement.com right there on the homepage and put in a little bit of information.

I think just your email address. And we will get that PDF out to you. Retirement planning isn't just about growing money, it's about using it wisely. Generating income, managing taxes, planning for healthcare costs, [00:24:00] protecting your legacy. At ClearPath Retirement Planning, we specialize in helping retirees and pre-retirees transition from accumulation to distribution with confidence and clarity.

If you're approaching retirement and want to plan, not just opinions, discover the clear path difference. Visit clearpathretirement.com today. Welcome to Clear Path Retirement Radio. From retirement income and tax planning to protecting the savings you've worked a lifetime to build. This is real world financial talk designed for real people.

People who want clear answers, not sales pitches, so you can make informed decisions and plan for retirement with confidence. Now here are your hosts, Stewart Smith and Mitch Davies. Welcome back in to ClearPath Retirement Radio. I'm Stewart Smith and I'm here with Mitch Davies, and he is going to give you his take on the markets in our weekly segment, Mitch's Market Minute.

Thank you, Stewart. As always, I'm, uh, I'm [00:25:00] excited. This is my personal favorite segment. Uh, what we're gonna do is follow the same structure that we've been following. First, we're gonna discuss, you know, where the markets are at today, what's going on this week, this month. Second, we're gonna talk about, you know, the, any economic data, anything we need to be watching, anything that's just reported.

And third, we're gonna talk about our focus, you know, what we're focused on, what sort of market sector rotation. What, what are we doing? And we'll talk about that today. But first, you know, overall this week's been slightly positive, still really choppy. S&P is still sitting in that mid 6,800 range.

The Dow Jones just under 50,000. Uh, we broke through that 50,000 range a couple weeks ago. It's since pulled back NASDAQ and the low 22,000. So nothing crazy since last week. No major move. What we're watching is volatility. We're, we're still seeing increased volatility and a metric we use to follow. This is the VIX, you know, maybe you've heard this term.

It's the volatility index and we're sitting at around 18 on that index. We, we like to see that [00:26:00] closer to 15 in a healthy bull market. What that tells us is we're still a little high on volatility. There's still a lot of uncertainty regarding pressing things in the world, like the tariff situation, inflation, a lot of these things and

the main thing that's came out recently, you know, we're always watching economic data that plays a huge part in the markets, and the markets are very active to this stuff. The most important development that we've seen was the GDP numbers that just got published. We came in at, I believe it was 1.4% for Q4 of 2025, which was

significantly down from not only expectations, but the prior quarter. You know, you wanna see that three to 4% range for healthy gross domestic product. This is just what the US produces and we wanna see that growing. We wanna see that at a healthy range. And that was, that was concerning. Other than that, you know, we haven't seen too bad in numbers.

The PPI data came in. Good. This is the. You know, you hear the term inflation, so you're hearing how much inflation is being passed to the consumer. [00:27:00] The PPI data is the producer price index, so this is how much inflation is like affecting the producer side of things, so distribution, the warehouses, how much is being passed over to the actual producer.

So that's still holding steady. Inflation is looking okay, but we're really watching that GDP and we're really watching, again, job growth and unemployment numbers. Uh, the weekly jobless claims are still okay. You know, we're still sitting at that 200,000 level, which is healthy, which is healthy. The unemployment

data that we got a couple weeks ago was down from the previous one. We'll have another report on that in a couple weeks. So we're watching unemployment, we're watching jobless claims, and now more importantly, we're gonna be looking for the Q1 2026, GDP. So big stuff, big implications there. And the main thing I wanted to talk about today is what we talked about last week.

And this is. What we believe to be the focus in the markets this year is the rotation away from that AI race. Everyone's heard it at this point. [00:28:00] Are we in an AI bubble? Are we overvaluing tech? And however you wanna project it out. The point is, the market itself is tired of this. These huge tech companies just pouring money into AI development.

They've been super overvalued. These companies have been propped up by these projections, by these future investments. They're basically gaining market cap. These huge companies are gaining market cap by promising these deals that could take years and years to develop that we don't really know if are gonna pay off or not, right?

We don't know. You know, AI is exciting. AI is. Taking over a lot of, business work, we don't know how it's gonna pay off. We don't know how it's gonna scale out. So what we're starting to see is a lot of these companies just rebalance in valuation, which is healthy, right? These valuations were extremely high.

And where that rebalancing is going is into these defensive value companies, into the two sectors we like to call consumer staple and consumer [00:29:00] defensive. Yeah. And what that really means is the companies that aren't just. Building into this AI hype that are the backbone of, you know, the economy. You, we've got the, think of the things that we use every day, like Walmart, Dollar General.

Think of the consumer staples that you need to go to buy groceries. Think of the things that you need to keep the energy on, the lights, on the trash going. All the things that keep the economy rolling that don't have to do with tech or robots or anything exciting like that. That's where our focus is. So, you know, one thing I'd like to challenge again to retirees especially is take a look at your portfolio and if a lot of your growth, a lot of your performance the last couple years, which it likely is because this is what you've have you've been wanting to do the last couple years, is be invested in these tech companies if you are still allocated the same as you were in 2022, 2023, 2024.

Consider and even last year, consider maybe shifting some of that over to [00:30:00] these sectors that we know aren't gonna go anywhere that we know aren't overvalued and just artificially propped up by exciting announcements that we know are continuing to pay dividends, continuing to pay employees that we don't want these companies that might be losing jobs.

You want companies that are gonna have to keep people going and the doors open and. Consumers coming through. So this is where our focus is this year. This is where we're trying to reallocate a lot of our clients to, capture some of that upside as we shift away from tech. I think over the long term, a lot of these tech companies will do fine, right?

But we've seen this overvaluation for a couple years and it's just needed to resettle, and I think that's where we're at right now. But that's what we're focused on for the year. Uh, we'll look forward to checking in on some of this economic data, checking in on where these companies are at next week.

And, uh, Stewart, I'll take it back to you. Hey. And you know, just to kind of parlay that into more of the retirement investment planning that we do. You know, most of the plans that we build [00:31:00] for folks they require, we're very conservative on what we would the assumed rate of returns that we have on the assets that they own, typically in that 6 to 8% range.

And, you know. We don't need to be invested in a lot of these tech companies in order to achieve that, you're taking a lot of risk by doing that. And we can achieve those type of numbers with much safer, like consumer staples, those type of energy, the things that that we're talking about here. So that also kinda lends itself to making sense.

And you know, the other thing that I'll say is. At least for me, I've, I feel like we've been, we, we've seen this movie before in that, there are companies that are just, investing billions into, into AI infrastructure and into the AI play, and that's great. We know from, from history that, that there's going to be winners and losers [00:32:00] there.

Absolutely. And if you look back at the .com bubble, that happened back in the 2000s, you know, there were winner, there were clear winners and losers looking back now, at the time we had no idea. But, you know, there, there were losers like, you know, we don't Kmart, you know, Kmart lost huge Walmart on the other hand

was a huge winner in that deal. Great. Yeah. Um, I mean, we've seen other companies that, that have just gone away because of all their, the, because they invested incorrectly at that time. And that's exactly what's gonna happen with some of these AI companies that are, you know, pouring this money in is some of them are gonna be, they're not gonna be around in five years.

Right. And some of these companies are going to explode because it's gonna pay off and they're gonna be winners. And do you really in retirement. Do you really want to be playing that game of trying to pick the winners and losers right now? I think there's just way too much [00:33:00] ambiguity and, and too much fog in that whole picture right now to be trying to do that when you could be investing in things that just are still gonna get you to the, the rates of return that you need to maintain your lifestyle but aren't gonna involve the kind of risk that we're talking about in these tech plays.

Right. Absolutely. So I think that's great. Great job, Mitch. I think that's great stuff to be thinking about. Um, we are definitely, um, investing for our clients much differently in retirement than they were invested when they were in that growth mindset. Yeah. It's a different ball game, like we've said a million times.

You're shifting gears. It's more about. Protecting what you've worked so hard to grow and controlling the tax picture the best that you can. But you know, the investments definitely have to be done in a much different way. In retirement. You have to take a bunch of that risk off the table and you have to still be invested to hedge [00:34:00] inflation.

You know, you have to be careful here. That this is a tricky deal and again, we, you know, I've been doing it for two and a half decades and with a lot of success and an amazing track record of helping my clients hit those income goals live, the retirement they wanted to live and, you know, that's what we do.

Right. So, alright, well let's move on. So the next thing that we want to address here is. In that five years leading up to retirement, again, those are critical years, guys. That is what we call the retirement red zone. Okay. And if you are in that five years prior to retirement, then again we've kind of talked about, some tax things you need to be thinking about. We've talked about sequence of returns risk and how you might want to be starting to allocate your assets differently. You know, the la the next thing we wanna talk about is, thinking about [00:35:00] Medicare. And healthcare. A lot of, you know what? We've seen a lot.

You know, Mitch earlier said that, that a lot of people are retiring later. This is true. We also have seen quite a few that are retiring early prior to 65. Yeah. And you know, healthcare is a real issue and bridging that time from when you leave that employer healthcare. To getting to Medicare at age 65.

If you're retiring before that, then you know, you, you really need to look at your options carefully, because I can tell you I had someone in my office this morning. That is, riding that bridge. You know, she retired at, at 63 and she is, uh, hitting Medicare at the end of the year and she shared with me that she's paying $1,400 a month for her healthcare right now, which is just.

I mean, very difficult to maintain [00:36:00] those kind of premiums. And so, you know, there may be options for you out there that can save you dramatic amounts of money, and that's something that our team works very hard on, is to make sure that we stay up to date with those options and that we can clearly. Sit down with you and take a look and see is there any cost savings options on the table for you to get you through that bridge to get you from that time to the point where you get to Medicare because healthcare is.

Gotten extremely expensive in this country and it is a real problem, and then the other thing that I would say is when it comes to picking a Medicare plan, nowadays, listen, this is a tricky deal. It is. You know, you would think when people are turning 65 that that, you know, this would be a pretty simple process at that point.

Nope, absolutely not. It is one of the most [00:37:00] complicated choices you will make in retirement, and I can tell you that, it gets very complicated between looking at, you know, Medicare supplements, Part D drug cards, Medicare Advantage plans. You know, what is all this about? What is part A?

What is part B? What is Plan G? What, you know, how did all these things fit together? If you are struggling with that, please go to clear path retirement.com and click that get started button, and go ahead and let's set up a time to sit down and have a conversation about how we can help you make the right.

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Let's get back to the show. Hey, welcome back to ClearPath Retirement Radio. I'm Stewart Smith and I am here with Mitch Davies. Welcome back. We are a veteran owned local retirement planning firm here in Greenville, South Carolina, serving the upstate of South Carolina and Western North Carolina. We are today talking about a very important topic. And for those of you who are in that five year window before retirement, we are talking about the major things that need to be on your radar and the most important things for you to be thinking about as [00:39:00] you approach that end zone. Right? Super important. And that, that, that red zone is everything.

And that's, uh, we're, we're excited to talk about it. Yep. I can tell you that this is where we shine, right? Yep. This is, this is where we do all our work. And for those of you who are in that window, you know, we're going to, we're gonna continue our discussion here, and one of the things I think that you need to be.

Really, clued in on and start to understand is, you know, how are you going to allocate your investments differently as you start to approach that retirement window? You know, we like to basically start to, to look at making that transition from, you know, just that pure growth accumulation mindset.

I just wanna make double digit returns every year and try to grow my assets as much as possible. It's a whole different game at this point. Now, in that five year window, what you [00:40:00] need to start understanding is now I need to start positioning those assets to start providing income, right? So that the minute that paycheck stops the in, you know, you can start drawing income off of your investments and having them work for you and providing you that, that critical retirement income that you need to maintain your lifestyle.

And so there's a real. Art to that there's a real, you know, we've learned a lot in two and a half decades of helping clients do this, and I can tell you that, you know, the first thing that you wanna make sure is that you are accessing the right accounts at the right time. You know, we call that withdrawal order when it comes to retirement planning and withdrawal order is very, very critical.

And there is no set perfect, guideline or answer to this. I, it's not, I think everybody's circumstances are different because, in, in general we [00:41:00] say, go ahead and access pre-tax money first. Let's go ahead and pay the taxes on that money as we pull out the income, but. If you are going over certain thresholds that way and getting your social security tax unnecessarily, or you know, getting into IRMAA situations where you're paying a higher part B premium for Medicare, then it might make sense to do that only up to certain thresholds and then access like tax free or taxable accounts at some point, right?

And so you have to be ex, that's why a plan is so critical. It, it, it really allows you to take a look at this and do that in the most efficient way possible. And I can tell you that not doing this correctly can cost you big in retirement. I can, and this is the kind of stuff you can't, you know, we always preach against, rules of thumb or quote unquote cocktail party advice where.

You can't [00:42:00] listen to just a set standard on this. You can't listen to, oh, always take IRA money first, or always spend the bank account money. There's so many different ways it could go. There's so many different implications and thresholds, so that's why, like Stewart said, it's critical that you have a plan.

'cause. Every plan we do is completely different, right? Yeah. Every plan we do is gonna be approached completely differently based on so many different factors based on how much pre-tax money do we have, how much, you know, what, what is the family situation like? What is our estate plan? Look, there's so many different factors, and so you can't follow one set thing of, oh, I just heard to, take all my IRA money out first.

There's. That could be messing you up in so many other ways. So there's too many factors to just kind of shoot from the hip on this stuff. Absolutely. And the this critical thing as far as withdrawal order and how you go about that can be the difference and. Having enough money and running outta money.

Absolutely. It can make the difference. And I know, you know, that seems dramatic, but [00:43:00] I'm telling you, we've done this for too long. Yeah. We've looked at too many different scenarios. What we can actually do is model through. All the different scenarios and really find the optimal way to do this for you to where every dollar counts.

And you know, the, the thing about it is, is it also changes. This is not a, this is not static. This is a dynamic thing where every year your life changes the. Legislation, you know, changes, Congress changes things every, you know, you can't, that's why it's so critical to work with a retirement planning professional.

Someone who is a fiduciary, someone who is going to meet with you. Every year, you know, we meet with all of our clients at least twice a year to update these plans and make sure that what we the plan we started with is still the right [00:44:00] plan to continue with. Right? And that does change. It changes all the time every year.

And that's why, working with a real retirement. Planning professional is what you need in retirement. You might have worked with someone for years who is very, very good at accumulation planning and growing assets, but they're not well versed in all of the moving parts, all of the rules, all of the, the different things that come into a.

Play as you get into retirement, and that's why you know, one critical mistake. It can cost you here. Yeah. And you know, we, that's what we do. We live, eat, breathe, and sleep this stuff. And we really can help you avoid mistakes, we can help you, you know, save tremendous amounts of money in taxes and things because that's, you know, we've been so focused on this.

I've been [00:45:00] focused on this for the last decade plus as far as just retirement planning issues. And I can tell you that, it has made the huge difference for all of the clients that I work with. So withdrawal order is a big deal. You need somebody who really. Knows what they're doing when it comes to withdrawal order.

Yeah. You can't just shoot from the hip on this stuff. You've got to have a real retirement income plan that allows you to model, okay, if I take the IRA money first, what does that look like? If I spend all of the bank account money first, what does that look like? If I take the Roth money first? How does that impact things?

You know, you've, it's a big. Picture. It doesn't, this doesn't just come year by year. No. This is a plan, right? This is, and you need to be confident that you are doing these things in the right way, the optimal manner possible. Alright, so the next thing that we're gonna talk about [00:46:00] is, planning for those, major healthcare events. Yeah. The earlier that you plan for those, the better. Yeah. What we've seen is people wait too late to come up with a plan for, God forbid, and, and, and most people don't even like to talk about it but should you need skilled nursing care at some point in your life, at some point, if you lose the c.

Capacity to make good decisions. You start, you know, you start to get dementia, you start, you know, God forbid, Alzheimer's, all of these things. Those things need, the earlier you can address that in your plan, the better, right? Because there's so much easier to address when you're younger and healthier, and in that five year window before retirement is really an optimal time to be thinking about this.

It's. The other thing that I'm gonna say is a lot of people have looked at long-term [00:47:00] care insurance, which is insurance that would step in and pay for things like assisted living, skilled nursing care, adult daycare, you know, all of the, you know, home health care, all of the different forms of care that you can get.

And those are great, but a lot of people have looked at it and they've said, you know, couple things I don't like about it. First of all, it's expensive. Yeah. But second of all, it isn't a, it is a use it or lose it type situation, right? Right. And what I mean by that is we've had clients who have paid into these policies for 30 years on a monthly basis like clockwork, and then they just.

You know, something happens, they have a, a major stroke or heart attack and never use the policy. And if you do that, that all of that money is gone. That it, that you don't get those premiums back. That's the way long-term care insurance works. And so what we have gone away [00:48:00] from that scenario over the past.

I don't know, it's probably been. Five to 10 years now in that window where we're, we're using these hybrid products to address long-term care, because they don't have this, use it or lose it feature. The money's always gonna get used. Whether you use it for long-term care, you pull it back out to pay for the back end of your retirement once you feel like long-term care is not gonna be an issue.

Or if you pass away and that money goes to a beneficiary, right? Yeah. So there is no losing in that scenario. And these products consist of life insurance with long-term care benefits attached to it, or annuities with long-term care. Attached to it. And they are some pretty amazing products, I can tell you that.

Um, they are a very unique way to address this and, um, we have helped a lot of clients just kind of take that, that worry off the table when it [00:49:00] comes to possibilities of needing skilled, very, very expensive, skilled nursing care at some point in their life through utilizing these type of products.

If you think that is something you want to take a look at. And you've looked at long-term care insurance, you know it's expensive and you know that it's just not a good fit for what you're trying to do. Give our office a call, 8647755033 or go to clearpathretirement.com and let us know you'd like to talk about it.

We'd be happy to kinda walk you through some of the different options out there outside of long-term care insurance that could be a much, much better fit for what you're doing. I. And as we wrap up here, I wanna remind you if you want the PDF that has the five major things you need to be focused on in that five year window before you retire, we call it the [00:50:00] retirement red zone, then please visit our website at clearpathretirement.com. You'll see right there on the homepage there is a way to enter a little bit of information and we will get that PDF right over to you. And I hope it really helps you as you start to think about, you know, all these things that we've discussed today. Are you anxious to see what retirement might look like for you?

Do you feel like you have the pieces of the puzzle but you're not sure how they fit together or where to start? At ClearPath Retirement, we help you bring clarity to retirement by organizing your income taxes, healthcare decisions, and legacy planning into one cohesive plan. Retirement doesn't have to feel uncertain, it just needs a clear path.

Schedule your complimentary consultation at clearpathretirement.com. You've been listening to Clear Path Retirement Radio with Stewart Smith and Mitch Davies, helping you make informed decisions so you can plan for retirement with [00:51:00] confidence. To learn more, visit clearpathretirement.com. That's clearpathretirement.com.

Investment advisory services offered through Alpha Star Capital Management, LLL C at SEC Registered Investment Advisor, SEC. Registration does not constitute an endorsement of the firm by the SEC, nor does it indicate that the advisor has attained a particular level of skill or ability. Fixed insurance products are offered through ClearPath Retirement Planning.

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