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Retirement countdown milestones
These key pre-retirement planning moves could help you boost your future income.
One day you’re celebrating the first day at a new job. The next thing you know, toasts are being raised at your retirement party. Taking action at these important milestones can help you fine-tune your investments, buffer against market volatility and help ensure that life post-work is more relaxing than taxing.
10 years out: Revisit tax diversification
At this stage of planning, it’s time to ramp up your savings efforts. It’s also a good time to ask your advisor how you could allocate your savings across three tax-related categories to help manage your tax burden in retirement:
- Tax-free
- Taxable
- Tax-deferred
Tax-deferred vehicles like 401(k) plans are important, and by taking advantage of strategies that help spread out tax obligations—such as a Roth IRA or Roth 401(k)—you may be able to diversify your investment portfolio and gain real benefits to income in retirement.
Benefits of tax diversification:
- Keep more of your savings: When you carefully choose the assets you will use to generate retirement income, you could pay less in taxes and as a result, keep more of your savings. This may help your savings last longer.
- Maintain control of your withdrawals: Tax-deferred investments, as well as the Roth 401(k), enable you to choose how much you withdraw to fund your lifestyle–before you begin to take required minimum distributions beginning at age 72 (Roth IRAs are not subject to the required minimum distribution rule, however).
- Adapt for unexpected needs: You may be able to adapt to unexpected life events. For example, to pay for unexpected medical costs you could adjust the timing or amount of withdrawals from taxable investments.
5 years out: Bring your retirement goals into focus
In the five years leading up to your retirement, ask yourself: What’s important to you? What would you like to do with the additional freedom and flexibility in your life?
Maybe you want to volunteer, focus on a hobby or work part-time. As part of ongoing retirement planning, it’s important to clarify how you will fund the activities that bring you joy and fulfillment. For example, if you haven’t already, this may be a good time to consider maximizing contributions to your retirement plans or paying down unsecured debt, such as credit cards.
2-5 years out: Plan for Social Security
Social Security is a source of income you can’t outlive, so deciding when to file for it is a critical step in retirement planning.
Deciding when to file for it is a critical step in retirement planning. Although you can start collecting benefits at age 62, you may want to consider delaying, depending on your circumstances. With each year you delay, your overall benefit increases until reaching the maximum amount at age 70.
After choosing a start date to collect benefits, you’ll need to apply online or in-person at a local Social Security office. Get more information about when you should collect Social Security.
Your advisor can help you evaluate the Social Security benefit options that support your financial goals and factor in your personal situation. In recommending an age to collect benefits, they will consider:
- Varying tax rates on Social Security income.
- Capital gains and IRA withdrawals.
- Health issues and life expectancy in your family history.
Additional steps to consider at this milestone include:
- Maximizing contributions to your retirement plans to meet federal limits.
- Paying down unsecured debt, such as credit cards.
1 year out: Monitor your expenses
In the 12-month countdown to retirement, it’s important to get an understanding of your monthly expenses. Consider keeping two running lists—either conceptually or literally using separate credit cards and checking accounts—to quantify two types of expenses:
- Essential needs that continue in retirement, such as housing, groceries, utilities and health care
- Lifestyle spending, such as travel, hobbies and dining out
After a year you should have a good idea of how much income you’ll need for necessities, with extra money reserved for leisure and other lifestyle expenses.
Review your retirement strategy with your advisor
An Ameriprise financial advisor can help you take the right steps today—while you’re still working—to support your retirement income later. Reach out to an advisor to factor tax diversification, Social Security income and lifestyle expenses into your financial picture.
Required Minimum Distributions
After you reach age 72, you are generally required by federal tax law to withdraw a minimum amount from your retirement savings plans each year. Learn more about Required Minimum Distributions
Learn MoreOr, request an appointment online to speak with an advisor.
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Diversification can help protect against certain investment risks but does not assure a profit or protect against loss.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
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