When most people think about retirement planning, they put the focus on growing their money. Their mood rises and falls with every roller-coaster turn of the daily stock market reports, or when they see the bottom line on their quarterly 401(k) statements.
But there's more to building a solid retirement plan, or what I call a "Retirement Masterpiece," than accumulating money. Eventually, you'll want to shift gears and preserve what you've built.
With that in mind, here are five things you can do right now to help improve your retirement outlook:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Make an income plan.
As a financial adviser, the number one question I hear is, "How do I build a plan so that I won't run out of money for myself or my spouse during our lifetime?"
The answer is to start by figuring out how much money you'll need to cover your expenses, including fixed expenses (mortgage or rent payments, insurance premiums, etc.), variable expenses (clothing, car maintenance), debt (outstanding student loans for yourself or your children, credit cards) and any one-offs (a new roof, for example, or a big vacation you plan to take).
Your guaranteed sources of income, such as Social Security or a pension, will be used to pay those expenses. If they aren't enough, your adviser can help you find others.
2. Make a protection plan.
You probably wouldn't consider going without fire insurance for your home, even though the odds of your house burning down are low—about 3%.
Similarly, it's important to hedge against risks that can "burn down" your income plan. For one example, the chances are much higher than in the past that you'll have some kind of long-term care need that is expensive and ongoing, especially considering we are all living longer. As a result, you'll want to be prepared for this very real risk.
Some estate planning also is in order to protect yourself from taxes—particularly in states that have an estate tax, as the exemptions levels are usually much lower than the federal level. And you'll want to make sure that if one spouse passes away, the other will have enough income to last the rest of his or her life.
3. Make an appreciation plan.
Now that those first two pillars of your retirement plan are taken care of, it's time to talk about how to continue to grow your money.
Whether it's conservative or aggressive risk, it's up to you, because these are the dollars you will have left after you've built your income and protection plans.
4. Make a tax plan.
The goal, of course, is to keep your taxes as low as possible. (I'm a financial adviser and a Certified Public Accountant, but I'm also a former IRS agent. So tax efficiency is important to me.)
There are a variety of ways to do this. One example is to use separately managed accounts as opposed to mutual funds. Both are managed by professional portfolio managers, and they may even contain some of the same holdings. But owners of separately managed accounts have more flexibility to buy and sell securities in ways that have favorable tax consequences.
5. Make a legacy and estate plan.
To put to rest any concerns about taking care of loved ones in the future, consult with an attorney to be sure to get all the legal documents necessary to ensure the efficiency of your estate, including a health care power of attorney, financial power of attorney, health care directives, wills and trusts.
Smart strategizing also can help reduce estate taxes, so if you didn't address this in your protection plan, get to it during estate planning.
Perhaps you've already begun pushing the pieces of your own five-pillared retirement plan into place. Typically, five years prior to retirement is a good time to sit down with a financial adviser to prepare your "Retirement Masterpiece."
Chris Harlow is a Certified Public Accountant, Investment Adviser Representative and licensed insurance professional with NW Tax & Wealth Advisory Group, Inc.. He is also the company vice president.
Kim Franke-Folstad contributed to this article.
-
Georgia Could Be Latest State to Eliminate Income TaxesState Tax Eliminating the Georgia state income tax: Last-minute summer trend or permanent policy?
-
Biggest Winners and Losers in Trump's New Tax PlanTax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
Five Things to Consider Before Rolling Your 401(k) into a Roth IRAConverting at least some of an old 401(k) to a Roth IRA can offer long-term tax benefits and retirement flexibility, especially if you anticipate being in a higher tax bracket later or wish to leave a tax-free legacy.
-
From Dream Apartment to Nightmare: When Your Landlord Evicts You Through No Fault of Your OwnThis is what I suggested a tenant do to get out of her lease after her landlord's inexperience and lack of action made her rental situation unsafe. It's a legal situation called 'constructive eviction.'
-
Six Steps to Being Empowered and On Track: An Expert Financial Guide for WomenWhile most female investors feel on track with their financial goals and empowered by managing their investments, many regret not starting sooner. Here's how you can get started and take control of your financial future.
-
Selling Your Business? This Powerful Insurance Option Unlocks Multigenerational WealthPrivate placement life insurance (PPLI) offers almost unbelievable investment flexibility, estate planning and tax advantages. And it's completely legit.
-
How to Maximize Your Social Security Now That the One Big Beautiful Bill Is LawWhen applying for your Social Security benefits, consider the new enhanced deduction for people age 65 and older, as well as your health, family situation and other financial issues.
-
I'm a Retirement Specialist: This Is How to Keep Your 401(k) on Track Amid Dire News AlertsHistory shows that consistent, disciplined investing far outweighs any attempt at market timing, so focus on long-term growth and tune out the sky-is-falling news headlines.
-
Five Money Moves to Make Before Your First Child Arrives: A Financial GuideI wish I'd known some of these when I was an expectant parent. These important steps include establishing an emergency fund, budgeting for new expenses, securing life insurance and more.
-
Retirement Tax Bombs: How Roth Conversions May Cut the Blue WireIf you have a significant amount in tax-deferred retirement accounts, you could be sitting on a tax time bomb. Luckily, there's a way to defuse the situation.
