10 Planning Steps to Take Within 10 Years of Retirement

Roger Wohlner, The Chicago Financial Planner

By Roger Wohlner, The Chicago Financial Planner 

The ten years prior to retirement are when a lot of people start to take a hard look at their retirement readiness. This makes sense, as you are likely in a position to make some decisions about what your retirement lifestyle will look like.

This is also a good opportunity to deal with any retirement shortfalls while there is still some time to make adjustments. Here are ten planning steps to take within 10 years of retirement.

Maximize your retirement savings

The ten years prior to retirement will be among the highest-income years of their careers for many retirement savers. This is a time to maximize your contributions to your 401(k) plan, to IRAs or to a self-employed retirement plan. While these contributions will not have as many years to compound as those made in your 20s and 30s, these late-career retirement contributions are still important.

Review Social Security

While there are concerns as to the solvency of Social Security, it’s likely those currently within ten years of retirement will receive their benefits. You should get your latest Social Security statement and check your benefits here. The Social Security Administration has indicated they will resume mailing statements as well.  Save them, and always review them to ensure that you have received full credit for all of your earnings.

It is important to know and understand the implications of claiming benefits at various ages. If you are married, there are a number of strategies to consider in terms of the timing of claiming your benefits.  This is the time to start thinking about when you might begin taking your benefits. 

Get your arms around all retirement accounts

It’s not uncommon for someone to have worked at five or more jobs over the course of a career. This can result in a number of old retirement accounts with former employers and elsewhere. If you are married and your spouse works, this number can easily double.

Additionally. I’ve seen people with old pensions in which they have a vested benefit.  Add to this a couple of IRA accounts and perhaps that annuity your college roommate convinced you to buy and you may have a disorganized mess.  This is a good time to make sure you have a list of all these old plans and accounts. It’s an even better time to develop a strategy to make sure old 401(k) and IRA accounts are consolidated and being properly invested and that your old employer has your current contact information regarding any old pension accounts. While many of these old accounts may be relatively small, they can add up to some real money when combined.

Figure in other financial resources

It’s important to get your arms around your other assets that will be available to support your retirement lifestyle. Here are a few items to consider, among others:

  • Taxable investment accounts
  • Annuities
  • Life insurance with cash value
  • Interest in a business
  • Stock options from your employer

Note that if your 401(k) account contains company stock you might benefit from the use of the Net Unrealized Appreciation (NUA) rules.

Determine if your company offers retiree health insurance. If it does, make sure you understand how much coverage will cost and how the benefits work.  In many cases the coverage may differ from what is offered to active employees and cover may be more expensive.

Take the money and run

It’s not uncommon for companies to offer incentives for employees to take an early retirement. If you are the recipient of such an offer consider taking it on two counts. First, the offer might be quite financially attractive; and second, if you don’t take the initial offer the next such offer in most cases may not be nearly as lucrative. Make no mistake, after that first offer you likely are “on the list,” so to speak. 

Develop a retirement budget

This is the time to start thinking about how you will live in retirement and how much this lifestyle will cost.  In other words, this is the time to develop a retirement budget. 

Do a Retirement Projection

There are many retirement calculators available online, perhaps even through your company’s retirement plan provider. Some are better than others, so do a little checking in terms of the methodology and underlying assumptions. Even the best ones are only tools that provide guidance but not definitive answers.

Most calculators will ask you to input your retirement assets, pensions and Social Security, other investments, etc. You can generally vary things such as your asset allocation and your spending level to get a range of outcomes and probabilities of success (which is generally defined as not running out of money).  While you may or may not like the answers, it is far better to know you have a potential shortfall as early as possible prior to retirement while you can still make some adjustments. 

Think about how you will take your money

One of the more complex and important things to manage during retirement is a withdrawal strategy.  Which accounts will you tap and in which order?  Different types of accounts will have different income tax consequences. Traditional IRA account and 401(k) account withdrawals are generally taxed as ordinary income. Roth IRA accounts will generally not be taxed as long as certain rules are followed.   Additionally required minimum distributions may come into play as well.

Besides retirement accounts, annuities have their own tax rules, as do appreciated taxable investments.  The point is the rules can be complex and making poor choices can cost you money that could be put towards your desired retirement lifestyle.

Poke holes in your plan

Perhaps you are on top of your retirement and have a plan in place.  Give some thought as to what could go wrong and what could derail your retirement plans.  What happens if you suffer a serious medical setback that causes you to stop working sooner than planned?  What if you are laid off before you are ready to retire?  What impact would events like these have on your ability to retire as planned? 

Hire professional help if you need it

This is a good time to engage the services of a competent financial advisor to assist you. Besides their expertise, a qualified advisor can add a detached third-party perspective to your retirement planning.

The Bottom Line

The 10 years leading up to retirement are a critical time to get a handle on all your resources for retirement, including Social Security, pensions, retirement accounts and other assets. Determine if you are on track towards your desired retirement lifestyle and if you see a shortfall this is the time to make adjustments. If you need the help of a financial professional, get it. Retirement success takes planning and this time period is crucial to help ensure a successful retirement.

Roger Wohlner is an experienced financial advisor based in Arlington Heights, Ill. He is active on social media; you can follow him on Twitter and Google+. Roger contributes to his own popular finance blog, The Chicago Financial Planner, where he writes about issues concerning financial planning, investments and retirement plans. In addition his work has been featured on Investopedia, US News & World Report, Yahoo! Finance, Equifax Finance Blog and other publications. Roger is available for additional freelance financial writing assignments. The above piece, 10 Planning Steps to Take Within 10 Years of Retirement, originally appeared on his blog, and is republished here with the author’s permission. 

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