investing

5 Things You Can Do Right Now to Help Improve Your Retirement Outlook

When you're about five years away from retiring, take these five steps to complete your retirement masterpiece.

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:

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.

About the Author

Chris Harlow, CPA, Investment Adviser Representative

CEO, Harlow Wealth Management

Chris Harlow is a Certified Public Accountant and CEO of Harlow Wealth Management, serving metropolitan Portland and southwest Washington to help clients craft their financial strategies for retirement. Chris’ past experiences have instilled in him a dedication to guiding clients through tax and retirement strategies. He has passed the FINRA Series 65 securities exam; holds life insurance licenses in Washington, Oregon and Arizona; and has his CPA license.

Most Popular

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math
retirement planning

Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math

The math isn’t as tough as you might think. It all starts with dividing your assets into three different buckets.
May 23, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Why Are Gas Prices Still Going Up?
spending

Why Are Gas Prices Still Going Up?

The cost of a gallon of gas is heading back toward its March highs. What’s driving the resurgence, and will gas prices go down anytime soon?
May 23, 2022

Recommended

Sometimes Renting Is Better Than Buying
investing

Sometimes Renting Is Better Than Buying

A home is an asset that generally appreciates in value, but it might not be the most optimal way to build wealth from an investment point of view.
May 25, 2022
Is Securities-Based Lending a Good Idea?
investing

Is Securities-Based Lending a Good Idea?

Securities-based lending may be a quick way to lay your hands on some cash, but you should be aware of the potential for risk.
May 25, 2022
How to Find the Perfect Balance Between Spending and Saving
retirement

How to Find the Perfect Balance Between Spending and Saving

It's the key to being able to enjoy life now AND in the future. It's also the basis for a successful retirement plan, and it all starts with setting y…
May 24, 2022
Education is Key: 3 Financial Lessons for Retirees Nearing Retirement
retirement planning

Education is Key: 3 Financial Lessons for Retirees Nearing Retirement

When it comes to retirement planning, educating yourself can keep you from making big mistakes. Here are three key lessons that everyone preparing for…
May 24, 2022