8 To Dos in the 10 Years before Retirement

Catch up to retirement

Think you can’t fix your retirement plan, think again

Planning for retirement can be difficult. With so many moving parts and so many big decisions, retirement can be overwhelming for even the most easy-going of us all.

One way to make the potentially stressful time a little less crazy is to plan. Plan often and plan thoroughly. In fact, a successful retirement plan often starts many years prior to the actual date of retirement. For the most prepared, retirement planning starts with the first job and the first enrollment in a 401(k) plan.

But from a practical sense, retirement becomes more and more “real” as we get into the “red zone”, the final few years leading up to the last day of work.

For those thinking about pulling the retirement trigger, that ten-year period before you go can mean the difference between a successful or a failed retirement plan. Through close attention to detail and thorough planning, it’s possible to make a sound retirement plan even better, or make a stable one more successful.

Regardless of where you find yourself on the retirement path, these eight steps may help you feel more confident that your retirement plan is a good one.

1 – Play Catch-up – Get into Maximum Savings Mode

The last few years before retirement are a fantastic time to save as much as you possibly can – a time to play catch-up.

Catch up from the years of having kids and all the expenses associated with parenthood. Catch up from the years paying a mortgage.

The end of making mortgage payments and the exodus of your children from your payroll, combined with the highest-earning period of your life, mean that the opportunity to save may be more  favorable.

For near-retirees looking to take advantage of, or maximize retirement savings, a common solution is to max out a 401(k) plan. At age 50 or older, the IRS allows for catch-up contributions of $6,000 per year to a retirement plan. Add this to the standard allowable deferral of $18,000 per year, and a single employee can defer up to $24,000 per year into a retirement plan. Assuming a hypothetical ten years of maximum savings mode and no interest, this is $240,000 of retirement savings per person.

If you consider a married couple, this is a hypothetical $480,000 per family.

Furthermore, assuming one rule of thumb suggesting you can withdraw 3-5% per year in retirement, and you’re now talking an additional possible retirement income of $14,400-$24,000 per year!

For those who can’t participate in a retirement plan (or have extra dollars after maximizing their deferrals), saving options may include a non-IRA brokerage account or an individual IRA (or ROTH IRA).

In a very simplified way, the key is to save. And save. And save. This savings could be the difference between retirement success and retirement failure.

2 – Calculate Your Budget, and Be Precise

While you are working, it’s important to have an idea of what you are earning and where you are spending it.

Retirement, however, requires additional precision.

As you move into retirement, you will likely enter a world with limited financial resources. It’s important to evaluate how long these resources will last. How long they will last is often directly correlated to how fast they are spent (or how quickly you withdraw your assets). Generally speaking, a higher withdrawal rate is associated with a higher likelihood that your resources will run out sooner rather than later (all else being equal).

In order to be more confident in your withdrawal rate, it’s important to understand your expenses. The more precise you are with your expenses and your budget, the more confident you may be in your projections. Simply, the math could look like this.

Total Expense Need (budget) $100,000
Projected Income Taxes $20,000
Total Need $120,000
Social Security Income ($50,000)
Other Pension ($25,000)
Net Need from Investments $45,000


In this hypothetical example, a detailed budget would suggest this retiree has an annual withdrawal need of $45,000.

A detailed budget of past and expected expenses will provide a foundation on which you can test your retirement. If you find yourself spending too much, you may decide to work a bit longer.

3 – Run a Tax Projection

Taxes and tax planning are often overlooked in retirement discussions. They shouldn’t be, though, because income taxes can have a huge impact on your overall withdrawal need.

Depending on your total income, your income sources, and your retirement withdrawals, you may find yourself in a wildly different after-tax scenario.

For example, a $50,000 distribution from a ROTH IRA will create a smaller tax impact than a $50,000 distribution from a traditional IRA. Additionally, the tax impact of these different distributions may be the difference between zero, some, or 85% of your Social Security income being taxable.

Ultimately, a good tax plan in retirement is one that will consider your income and income sources, and then strategically withdraw from your various IRA and non-IRA investment accounts to help maximize your after-tax withdrawals (both in the short term and the long term).

4 – Test How Long Your Money Will Last

Retirement is full of uncertainties. How will my investments perform? How long will I live? What will inflation be? What unknowns am I not considering?

Unfortunately, many of these uncertainties will remain just that. Uncertain.

However, it’s prudent to evaluate how these uncertainties may impact your retirement. What if the markets perform better or worse than projected? What if inflation rears its ugly head, or what if I die prematurely? All these questions can be illustrated through the use of Monte Carlo simulations.

Monte Carlo simulations provide a representative example of how retirement may look based on any number of inputs. The outcomes from the simulation can provide a representative example of how likely or unlikely it is that you will have a successful retirement. Results may vary with each use and over time.

While it’s not a perfect answer and it’s not a final answer, Monte Carlo may help demonstrate whether your illustrated retirement is possible or not. It may also help uncover areas of weakness or concern.

5 – Reallocate Your Investments

As you near retirement, your investment risk tolerance may change. You may not want to take as much investment risk in retirement as you did pre-retirement. In addition, your risk capacity may change. Risk capacity is how much risk you can assume. As your investment time horizon shortens, your risk capacity likely diminishes. As such, the years approaching retirement should include paying active attention to your investment allocation.

Some old school retirement investment strategies suggest investing your age in bonds, while other more extreme measures suggest removing market risk entirely. Unfortunately, these strategies may be short sighted and fail to impart adequate consideration to other risks, such as longevity or inflation.

More recent retirement investment strategies include a bucket strategy, where short-term dollars are invested with low risk and long-term money is invested more aggressively. Other progressive strategies suggest investing low risk early in retirement and gradually increasing to a more aggressive allocation throughout retirement.

Regardless of old school or new school strategies for investing in retirement, there is no assurance these will yield positive outcomes.

As you approach your retirement, it’s important to ask yourself the following questions. Are you invested for the short term or the long term? Do you need some or all of the money now or later? Are your taxable dollars invested differently than your tax deferred dollars?

In addition, what is your overall tolerance for risk? Are you a safe investor or a risky investor?

Only by addressing these questions and connecting the answers with the other parts of your financial plan can you begin to develop an investment strategy.

6 – Live on a Retirement Budget

Great, now that you have calculated your projected retirement income need, it’s time to live on it. Take a few weeks, months, or years and live on your projected retirement budget.

How does it feel?

Do you feel yourself pinched for pennies and not able to make ends meet? Or do you find yourself having extra dollars?

If you find yourself with extra dollars and the retirement plan is projected to be successful, great! You are putting yourself on a path to a great retirement.

If you find yourself spending too much and unable to make ends meet, though, it’s better to find out now, beforehand, rather than after you pull the retirement trigger. At least now you can make changes to your spending, your retirement, or your investments (or more likely a combination of several things).

7 – Pay Off Debt

For many, eliminating debt prior to retirement is a goal.

Depending on your retirement goals and objectives, getting some or all of your debt paid off may be the right decision. If the debt is not paid off at retirement, having a plan to tackle the debt is a great second-best option.

The type of debt is also important. A mortgage payment at a low interest rate that provides a tax benefit should be evaluated differently than a credit card balance that continues to increase.

Paying off debt prior to retirement may free up cash flow to be used elsewhere. In addition, removing a mortgage payment from your monthly expenses likely means a lower annual withdrawal need from your investments. A lower withdrawal need may mean less retirement savings needed to meet your goals.

8 – Consider your Time in Retirement

Have you thought about what you are going to do in retirement? How are you going to spend your days when you no longer have a 9-5 schedule?

For many retirees, pulling the trigger to retire is more a question about what they are going to do next than it is about how much money they need to save.

Often, retirees’ social circles, their friends, and their time revolve around work. When this suddenly disappears, it may lead to a feeling of “what now.”

Retirees who find new hobbies, new activities, and new things to do may find themselves in a happy place.  After all, we all need to spend our time doing something.

The Constant Process of Retirement Planning

One thing I have learned in my 12 years in the business is that every retirement plan is a little different. For some, paying off debt is necessary prior to pulling the trigger, while others don’t mind keeping a mortgage in retirement.

Some people may consider doing some consulting work in retirement, whether they need the money or not.

So as you approach your retirement and evaluate what you need to do, remember that the above list is only a representative example of what you should consider, not an edict that should be followed to a T.

However, the last ten years prior to retirement are the perfect time to evaluate where you are and where you want to be. And remember that ten years gives you a lot of time to make a material impact on the final retirement outcome.


Tax services are not offered through, or supervised by Lincoln Investment, or Capital Analysts.

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