Many of the people who engage the services of the financial planner tend to do so as retirement approaches. This is natural; retirement is big step. From my experience in working with this type of client over the years here is a financial planning to-do list if you are within 10 years of retirement.
Sock Away as Much as Possible
For many retirement savers these are the highest income years of their careers. This is the time to contribute the maximum amounts possible to your employer’s retirement plan, IRA accounts, and the like. While these contributions will not have the years to compound as those made in your 20s and 30s, every bit helps. (For more, see: Financial Planning: It's About More than Money.)
Check Social Security
While there is some discussion as to the future solvency of Social Security, it's likely that those currently in their 50s will receive their benefits. You can get your statement and check your benefits here. The Social Security Administration has also indicated that they will resume mailing statements, so keep an eye out for yours. I suggest saving them, and always check to ensure that you have received full credit for all of your earnings.
Moreover it is important to know and understand what your benefits will be if claimed at various ages. If you are married there are a number of strategies to consider in terms of the timing of claiming your benefits. Here are a pair of good calculators from Social Security and AARP.
Gather Info for All Retirement Accounts
These days it is not uncommon for someone to have worked at five or more jobs over the course of their career. This can lead to a number of retirement plans with former employers. If you are married and your spouse works this number can easily double. This is of course in addition to your Social Security benefits.
Over the years I’ve seen people with old pensions in which they have a vested benefit, old 401(k) plan accounts that they have basically left with their old employer and ignored over the years, multiple IRA accounts, etc. This is a good time to make sure that you have a list of all of these old plans. It's an even better time to develop a strategy to make sure that 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 might be relatively small, if you have several this can add up to real money for your retirement. (For more, see: Should You Roll Over your 401(k)?)
Figure In Your Other Financial Resources
This is also a good time to get your arms around your other financial assets that are potentially available to support your retirement lifestyle. Here are a few items that you might have: taxable investment accounts; an annuity; life insurance with cash value; interest in a business; stock options from your employer. If your 401(k) account contains company stock you might benefit from the use of the Net Unrealized Appreciation (NUA) rules. Additionally, determine if your company offers retiree health insurance. Will you work full or part-time during retirement? (For more, see: Rolling Over Company Stock: A Decision to Think Twice About.)
It's not uncommon for companies to offer incentives for longer tenured 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 is not nearly as lucrative. And make no mistake, after that first offer you likely are "on the list," so to speak.
Some folks might be lucky enough to be in line for an inheritance from parents or others. I generally urge caution in including this as a retirement asset. Things can happen. Your parents might live longer than expected and the cost of their care could eat away at much of their wealth. (For more, see: Retirement Investment Strategies by Age.)
Determine How Much You'll Need to Support Your Lifestyle
This is the time to start making some choices about how you will live in retirement, and more importantly, to put some dollar figures to this lifestyle. Will you be moving and/or downsizing your house? Will you be debt-free by the time you hit retirement? Will you have adult children to support? (For more, see: Want to Travel the World in Retirement? Here's How.)
Another way to say this is to start thinking in terms of 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 the underlying assumptions. The better ones are great tools to give you an idea if your plans for retirement are realistic or not.
Most retirement projection tools will ask you to input your retirement plan assets, any pensions and Social Security, other investments, etc. Based on variables such as your investment allocation and other factors these programs will give you an idea of how much retirement cash flow your resources might be able to support. While you may not like the answer, it is far better to know you have a potential shortfall as early as possible prior to retirement. (For more, see: ETFs Commonly Found in Retirement Accounts.)
This might be a good point to engage the services of a competent fee-only financial adviser to assist you. Besides their expertise, a qualified adviser can add a detached third-party perspective to your retirement planning.
Think About a Withdrawal Strategy
One of the more complex aspects surrounding retirement can be determining which of your accounts to tap and in what order. Different types of accounts 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. (For more, see: Tax Treatment of Roth IRA Distributions.)
Annuities are may be taxed in part or totally depending upon how you take the money. Taxable investments can qualify of preferential long-term capital gains treatment if certain rules are followed. The point is that the rules can be complex and making poor choices can result in adverse consequences to your financial health in retirement.
Consulting with a qualified tax or financial adviser is a really good idea here, especially if you expect to be in a high tax bracket during retirement. (For more, see: Estate Planning: 16 Things to do Before you Die.)
Stress-test Your Plan
Even the best-laid plans don’t always go according to plan. Give some thought as to what could go wrong. What happens if you suffer a serious medical setback that prevents you from working until retirement? What if your company decides to lay you off prior to your desired retirement age? Will your plans for retirement still work financially? (For more, see: How an Advisor Can Help Cut Your Healthcare Costs.)
The Bottom Line
The 10 years leading up to retirement are the time for investors to get their “retirement ducks in a row,” so to speak. Get a handle on all of your resources for retirement including Social Security, pensions, retirement accounts, and other assets. Determine what you will need to support your lifestyle in retirement and determine if your financial resources will support your lifestyle. If you need the help of a financial professional, get it. A successful retirement takes planning and this time period is crucial to help ensure a successful retirement. (For related reading, see: Is a Career in Financial Planning in your Future?)