4 things to put on your to-do list for retirement prep

Determine how much you need to save

Here's where a bit of list-making—or the help of a financial professional—can make the process easier. Grab a piece of paper (or pull up a blank screen if that's easier) and jot down some expenses associated with your retirement vision.

No matter what you see yourself doing once you retire, figure out some rough estimates for expenses you're likely to have.

"Common expenses—regardless of your plans— include housing, food, utility, and health care costs," said Mary Ryan, a financial planner with Vanguard Personal Advisor Services.

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"The goal is to determine a general target of how much you'll need to meet those expenditures, using the income you expect from things like Social Security, a pension, or annuity, along with the sum you'll need tucked away in retirement or investment accounts," she said.

Invest for retirement with an appropriate asset mix

Put your savings to work for your future through investing. A best practice is to invest in the right mix of stocks, bonds, and short-term cash reserves (your asset allocation), based on your goals, the length of time before you'll need to use your savings, and your comfort with risk. Vanguard research shows that, even more than specific investment selections, asset allocation is a key component of investment success.

"A crucial part of determining your asset mix means being honest with yourself about how comfortable you are with risk, including when you might have to challenge your comfort level a bit for your long-term benefit," said Anish Patel, also a planner with Vanguard Personal Advisor Services.

"Returns are the incentive to attract investors; that's why investments with low risks also have low returns—because there's less need to entice someone to make that investment. But risk comfort can be highly dependent on the market environment. When markets are good, many people think they have a high tolerance for risk, only to find when downturns occur, as they always do, that they have very little tolerance," he said.

Review and adjust investments regularly, even when markets are turbulent

Markets don't tend to move in slow-and-steady progressions. And when they shift, the changes can pull your asset allocation out of alignment with your set strategy.

"Regular reviews that focus on whether or not your asset mix is on target can help you know when to make adjustments so you can stick to your long-term plan," said Ms. Ryan.

"Rebalancing aims to minimize risk rather than maximize returns," Mr. Patel added.

Without rebalancing, "it's possible for a portfolio to become overweighted with one type of investment. More often, this situation occurs with stock holdings when equity markets are strong. When stocks appreciate quickly and shift a portfolio's balance, it's more vulnerable to market corrections, putting it at risk of greater potential losses when compared with the original asset allocation," Ms. Ryan said.

Minimize taxes

The saying, "Location, location, location" applies to more than just real estate. As Vanguard's IRA investment research notes, the type of account in which you hold your assets can make a difference in the amount of taxes you owe.

"Investments that generate capital gains distributions or taxable income are better held in tax-advantaged accounts. For example, taxable bond returns are almost all income and thus subject to income taxes, so holding them in an IRA is a smart strategy," said Mr. Patel.

Ms. Ryan added, "Conversely, tax-efficient investments make more sense held in taxable accounts. So it often makes more sense to hold equity index funds, which generally have less turnover and fewer capital gains distributions, in taxable accounts."

Get help

If you need a sounding board as you complete the tasks on your to-do list, a financially savvy family member may fit the bill. An advisor can also serve as that sounding board. And, if you don't have the inclination—or the time—to perform these steps, it makes sense to enlist professional help. (Vanguard has a team of financial planners, including Certified Financial Planner™ (CFP®) professionals, who don't receive extra compensation for their recommendations; they work solely to help you reach your goals.)

Whether you work in partnership with a financial planner or act independently, checking these items off your to-do list can help you be more prepared for retirement.

Notes:

This content was provided by Vanguard Personal Advisor Services. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.

• Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
• Advisory services are provided by Vanguard Advisers, Inc. (VAI), a registered investment advisor.