Stage 4: Age of Reflection

If you are between the ages of 55 and 65, you have probably noticed that your friends and loved ones make it their solemn duty to constantly remind you how old you are. When referring to your age, they frequently make references to inanimate objects (like dirt) and biblical figures (like Moses). They also make the greeting card industry rich by buying those humorous birthday cards designed to remind you that you are getting old (as if you needed a reminder).

In spite of the teasing, there's no denying that the people at this point in the life cycle model of retirement planning are aging. This is not a bad thing when you consider that you are, after all, still alive. However, this period can be bittersweet in nature.

People generally become more introspective at this time in their lives. They often become more philosophical and religious. They reflect on their lives and what they have or haven't accomplished. They also take a sobering look ahead to consider what they can still achieve.

For some, this is the initial period when saving for retirement is taken seriously. This is unfortunate, however, because the options are very limited for those seeking to retire at 65.

Consider the table below. If you are in your 60s and have not saved anything for retirement, you are in serious trouble.

Even if you find yourself in the worst-case scenario (like the example below), whatever you do, don't throw up your hands and quit. Even if you have a short time to make something happen, some cushion is better than no cushion at all.

Example Once upon a time, there lived an industrious ant and a carefree grasshopper. The ant toiled all of its adult life, continually storing food for its retirement. The grasshopper, on the other hand, lived for today and ridiculed the ant's hard work. Many years went by and the ant eventually retired to a comfortable assisted-living ant colony in Florida. Meanwhile, the grasshopper became too old to forage and grew weaker each day from hunger. In its weakened condition, the grasshopper was easily picked off by a passing bird one day.

For most other people, this life cycle period is a time to fine-tune your retirement goals and strategies. Your income may increase while your career peaks. Your expenses may decrease when your kids leave home and you become an empty nester. Whatever the reason for change, opportunities can still exist to make some meaningful contributions toward retirement.

Tip There is an old joke that involves a plan on how to become a millionaire. The joke is that the first step in the plan is to get a million dollars. The same principle (without the humor) applies if you are 65, have saved nothing, and want to retire with $1,000,000. Unless a big bag of money miraculously falls out of the sky, your retirement is not going to be funded on its own.

At the same time, don't ignore the possibility that your expenses may also increase sharply during this life cycle stage. Paying for children's college tuition or parents' elder care may hit you at this time. Health issues may develop and drain finances. Surprisingly, many couples pick this time to divorce, which results in major disruption to the financial resources of both parties. So, learn to expect the unexpected and factor it into your retirement plan as best you can.

Tip At this point, the majority of your retirement savings should definitely consist of conservative investments with lower risk. Although you still want to create a steady stream of income and to beat inflation, you don't have the time to make up a big drop in the value of your investments. For example, many people heavily invested in the stock market at the beginning of 2001 had to postpone retirement when the market tumbled and the value of their retirement savings was cut in half. The same thing happened to many who were heavily invested in the stock market in late 2008. Their dreams of retirement were put on hold as the market began to drop dramatically. This doesn't mean you shouldn't think about higher risk investments. Be aware, though, that investing becomes more like gambling as you get older. As with gambling, you should invest only the amount of money you can afford to lose.