Pre-retirement checklist

Key Points

  • Retirement planning moves at pivotal milestones could boost your future income.

  • Tax diversification can be crucial to preserving more of your retirement savings.

  • Social Security planning may increase your overall lifetime benefit.

Key strategic pre-retirement planning moves

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. With each passing year, the hands on the retirement clock spin faster. That’s why it’s wise to establish milestones — at 10 years, five years and one year out — to fine-tune investment strategies, buffer against market volatility and help ensure that life post-work is more relaxing than taxing. 

10 years out:

  • Make a concerted effort to ramp up savings. Your window for "socking away" cash is beginning to narrow.
  • If you have school-age kids, now's the time to put money away for college (or pay off education loans if they have already graduated).

5 years out:

  • Continue fine-tuning your tax strategy.
  • If you haven’t maximum-funded your retirement plan up to federal limits, begin doing so.
  • Pay down unsecured debt such as credit cards.

1 year out:

  • Give some thought to which income sources you want to draw on first, second and third.
  • Determine whether you'd like to take or delay Social Security benefits.
  • Work with your advisor to manage risk in your portfolio.

“To maximize your retirement income, it can be beneficial — at specific milestones — to take a deeper look at your tax diversification, Social Security options and expenses," 

-Marcy Keckler, vice president of Financial Advice Strategy at Ameriprise Financial.

Revisit tax diversification

At this stage of planning, it’s probably becoming easier to envision your life in retirement. This is 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,” Keckler says.  

Leveraging all three tax categories can deliver these benefits during retirement:

  • 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.
  • Control: 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).
  • Flexibility: 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.

Determine your Social Security strategy

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.

Although you can start collecting benefits at age 62, waiting to collect can pay off. “With each year you delay, your overall benefit increases until reaching the maximum amount at age 70,” Keckler says.

Your advisor can help you time your Social Security benefits as part of an overall cash-flow strategy, which includes selecting investments with specific maturity dates.

After choosing a start date to collect benefits, you’ll need to apply online or in-person at a local Social Security office.

Monitor your expenses

In the 12-month countdown to retirement, monitor your expenses to understand your monthly costs. Keckler recommends running two sets of books — either conceptually or literally with 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, Keckler says “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.”

Diversification can help protect against certain investment risks, but does not assure a profit or protect against loss.
Investment products are not federally or FDIC-insured, 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.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC., a registered investment adviser.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.