10 Financial Planning Steps to Take Within 10 Years of Retirement

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10 Financial Planning Steps to Take Within 10 Years of Retirement

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Retirement Planning > Spending in Retirement

10 Financial Planning Steps to Take Within 10 Years of Retirement

By Roger Wohlner

Slideshow April 19, 2022 at 11:13 AM Share & Print

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Related: A Financial Planning Checklist for Newly Single Clients Over 50

The 10 years leading up to retirement is a crucial time in determining whether or not your client will be able to retire successfully and on time.

There are a number of important financial planning issues to deal with during this period, including budgeting, creating a withdrawal strategy and estate planning.

In the gallery above are 10 important steps to guide your client through within this 10-year window.

(Image: Chris Nicholls/ALM; Adobe Stock)

Roger Wohlner

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10 Financial Planning Steps to Take Within 10 Years of Retirement

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1. Prepare a retirement spending budget.
This is the time for your client to do serious planning around what their desired retirement lifestyle will look like, and to put a price tag on this lifestyle. Will they stay in their current house or downsize? Will they relocate? Do they plan to travel or engage in other activities?

Recognizing that things can change even once they get to retirement, it's important to get them thinking about their spending budget as this will drive most of the other aspects of their retirement planning.

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2. Maximize retirement plan contributions.
Many of your clients are in their peak earning years in the period leading up to retirement. This is a time to be sure they are contributing the maximum to their employer-sponsored retirement plan such as a 401(k). If they are self-employed, be sure they are funding a Solo 401(k) or a SEP-IRA and possibly a pension plan for themselves.

Retirement plan contributions during this period can help pad their retirement nest egg and can often be the difference between clients meeting their retirement goals or falling short.

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3. Review Social Security.
This is the time to have your client review their Social Security statement to ensure that their earnings history is accurate and complete. Any missing earnings could reduce their benefit level.

This is also a good time to review their benefit levels at different ages as part of the retirement withdrawal strategy you will ultimately be putting together for them and as part of the client’s inventory of financial resources. This is a good point in time for your client to begin thinking about when they will claim their Social Security benefits, especially for married clients.

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4. Plan for retirement health care needs.
Health care will be one of the largest expenses most of your clients will face in retirement. This is a good time to ensure your clients have a good handle on how they will deal with these costs.

Medicare is the primary vehicle for health care coverage for most retirees. Work with your clients to ensure they understand how Medicare works. As they get closer to retirement, be sure they understand how and when to apply for benefits.

For clients who will be retiring early, or at least leaving their employer before being eligible for Medicare, it’s important to plan for health care costs during this gap period. If the client is married and their spouse is working, they may be able to join the spouse's plan. If they have a health savings account through their employer, it can be used to cover many medical expenses in retirement.

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5. Take inventory of all financial resources.
This is the time to be sure that you and your client have a handle on all financial resources that they can use to fund their retirement needs. These may include:

Income streams, like Social Security, a pension, a payout from selling their business, or payments from a severance arrangement after accepting a buyout from an employer.

Retirement plans, like Roth or traditional IRAs; employer plans such as a 401(k), 403(b) or 457 plan; deferred compensation plans; SIMPLE IRAs; SEP-IRAs; and Solo 401(k)s.

Taxable investments, like individual stocks and bonds, ETFs and mutual funds.

Other assets, including an interest in a business, employment or self-employment income, an inheritance or life insurance death benefit, real estate or alternative investments.

Your clients may have other types of assets that can be tapped in retirement. It’s important that you and your client get your arms around all these assets so they can be included in your client’s retirement projections.

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6. Review all company benefits.
Your client’s employer may offer benefits for employees in retirement. Some larger employers may offer some form of retiree medical insurance coverage. This can be a lucrative benefit that can be used to supplement Medicare benefits and as a bridge to Medicare for clients who leave their job early.

Does their employer offer a pension? Be sure to review all aspects of the plan including the level of benefits at various ages.

Does your client have any stock compensation from their company? If so, you will want to analyze the plan and the underlying stock to determine the best exercise strategy.

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7. Run some projections.
Take the information gathered above and run several projections to see if the client’s financial resources will support their planned retirement lifestyle. You will want to test varying factors such as retirement age, Social Security claiming date, annual spending levels and life expectancy.

Financial planning software can help quantify the effects of these factors on your client's risk of running out of money.

Your projection may indicate that your client is at risk of outliving their money in retirement. This could lead to an adjustment in their retirement spending or perhaps a decision to work a few extra years. It’s better to realize that they need to revise their plans prior to retirement than later on when it may be too late.

Revisit these retirement projections periodically in the years leading up to retirement and once your client is retired in order to help ensure they are still on track, allowing for adjustments in spending or asset allocation if needed.

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8. Poke holes in their retirement planning.
As their advisor, one of your most important roles is that of sounding board. In the case of retirement planning, look at what could go wrong. Poke holes in their assumptions and in yours. For example, will their plans stand up under the weight of a serious illness? What about a prolonged decline in the markets?

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9. Formulate a withdrawal strategy.
A key element in implementing your client’s retirement planning is formulating a retirement withdrawal strategy. This involves determining which accounts your client will tap and in what order. While the RMD rules will dictate a portion of this strategy, there is a lot of flexibility beyond this.

Retirement income streams like Social Security and a pension should be considered. Taxes are a big part of this exercise as well. The client’s tax situation may dictate whether withdrawals should be made from taxable accounts or retirement accounts. If the client has Roth accounts, this will factor into the equation as well.

Some clients may have a “gap” period when they have retired, or semi-retired, but have not yet claimed their Social Security benefits. This may be a good time to consider a Roth IRA conversion to help reduce RMDs in later years and to provide tax diversification down the road.

The client’s retirement withdrawal strategy is not a “one and done” proposition, but rather something you and your client will want to review and adjust as needed during retirement.

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10. Review their estate plan.
It may not seem intuitive at first blush to include estate planning on this list, but this can dovetail with your client’s retirement planning in several ways. Your married clients will want to be sure that everything is in place for whichever spouse is the survivor. This includes asset ownership, retirement account and insurance policy beneficiary designations and a host of other issues.

In some cases, the client’s intentions in terms of leaving their assets to heirs may come into play in terms of which retirement assets they choose to spend down first.

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