Every Retirement Plan Should Include These 5 Points

The nuts and bolts of retirement planning can be boiled down quite succinctly. So what are you waiting for? Get started.

An older woman stands with a small smile and folded arms.
(Image credit: Getty Images)

Life expectancy is longer today. Interest rates are low, and inflation is creeping back up. Taxes will likely increase in the next few years. Will the stock market continue its steady climb? You can hope, but who knows? Volatility could be part of that long-term equation.

All of these factors create financial uncertainty in the future and make planning for retirement more complex. With that in mind, here are five key components of preparing for retirement:

1. Get an income plan

How much money do you need, and where will it come from?

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Those are two very important questions. As you enter your prime earning years, it’s important to think ahead about how much income you will need in retirement. Then invest accordingly.

When you are working, investing is fairly straightforward. All your money has to do is grow. When you retire, your money has to provide income, pay taxes, and grow in order to support your lifestyle. Investing becomes much more nuanced and even more challenging once you start taking income.

As you near retirement, here are a few steps to get you started on an income plan:

  1. List all your guaranteed sources of retirement income — Social Security, pension, an annuity with a guaranteed minimum amount, etc.
  2. List retirement savings and investment accounts, such as a traditional IRA, 401(k), Roth IRA or Roth 401(k).
  3. Ask yourself whether your projected income will cover your expenses and the kind of lifestyle you desire. Remember, a common rule of thumb is that in retirement, most people need to replace roughly 60% to 80% of their pretax, pre-retirement income in order to maintain their lifestyle.

2. Maximize your Social Security income

To maximize Social Security benefits for you and your spouse, you need to know which of the estimated 567 separate claiming strategies for married couples is right for you. Sometimes, it makes sense to start taking Social Security while letting your nest egg grow. For others, it makes sense to draw down on investments to let your Social Security benefits continue to grow until full retirement age (usually around 67) or to when the benefit amount peaks (age 70) before claiming the benefits.

An important note: If you and your spouse were born on Jan. 1, 1954, or earlier and have both reached full retirement age, you can claim spousal benefits and let your own benefits keep growing. At age 70, you can switch to the higher benefit. The strategy is an option called “restricted filing,” and it isn’t available for those born on Jan. 2, 1954, or later.

3. Explore your tax strategies

Taxes catch many retirees off guard, because conventional wisdom suggests that with less income than they earned during their working years, taxes would be significantly lower in retirement. Many retirees find that this isn’t the case. A key part of your planning strategy is to reduce the taxes from withdrawn funds from tax-deferred accounts, such as 401(k)s or IRAs.

Required minimum distributions for tax-deferred accounts begin at age 72, so it’s crucial to have a plan in place well before then.

One effective strategy is converting tax-deferred funds to a Roth IRA or Roth 401(k). While the conversion amount is taxable in the year it is converted, the upside is these Roth accounts let your retirement savings grow tax-free and are not taxable when withdrawn (as long as you’re 59½ or older and have owned a Roth for at least five years). Don’t let the upfront tax bill prevent you from moving your retirement funds from accounts that are taxed no matter when you take them out into accounts that are tax-free. The point is to not be shortsighted at the expense of being hit with tax time bombs in retirement.

Roth IRA conversions are just one strategy to keep your Social Security from being taxed. If your provisional income is between $25,000 to $34,000 (for single filers) or $32,000 to $44,000 for joint filers, then up to 50% of your Social Security is taxable. If your provisional income is higher than that, then up to 85% of your benefits may be taxable. These extra taxes may force you to take more money out of your nest egg to support your lifestyle.

4. Forecast your medical expenses

Health care continues to be one of the largest expenses in retirement. Many people assume Medicare will cover all of your health care costs in retirement, but it doesn’t. One way to prepare is to enroll in a health savings account (HSA), which some employers offer. When contributing to an HSA, you can save pretax dollars (and possibly collect employer contributions), which have the potential to grow and can be withdrawn tax-free in retirement if used for qualified medical expenses. For 2021, the regular HSA contribution limit is $3,600 for individual coverage ($3,650 in 2022), and $7,200 for family coverage ($7,300 for 2022). Those enrolled in Medicare cannot make new contributions to an HSA.

Another way to fill the gap not covered by Medicare is long-term care insurance. While long-term care insurance premiums are not affordable to everyone, an alternative is purchasing a life insurance policy that has the option of adding a long-term care insurance rider.

5. Plan your estate

Estate planning isn’t just about how you want your assets distributed after you die. It is about preparing for contingencies if you become unable to make your own financial or medical decisions. It is about creating a smooth transition for your loved ones in settling your affairs.

Key elements of an estate plan include a will; assignment of power of attorney, which gives the person you name the authority to manage your financial affairs if you are unable to do so; a health care proxy, which authorizes someone you trust to make medical decisions on your behalf; and a living will, a statement of whether you want life-sustaining medical intervention if you become terminally ill and unable to communicate. Take the hard decisions off of your children by having them follow legal directives in the estate plan. Work with an attorney to make sure you obtain the right estate planning documents for your situation.

For something as important as your financial future, it’s important to work with a financial professional. Everything in the plan should be coordinated — taxes, Social Security, income planning and investments. Your adviser needs to understand your entire financial picture, how the elements such as taxes and income generation interrelate, and how they can help you reach your retirement goals.

Dan Dunkin contributed to this article.


These materials are provided for general information and educational purposes. Echelon does not provide investment, tax or legal advice. The information presented here is not specific to any individual’s circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used and cannot be used by a taxpayer to avoid penalties imposed by law. Each taxpayer should seek independent advice from a tax professional based on their circumstances.


The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Chris Wilbratte, Investment Adviser
Co-Founder, Echelon Financial

Chris Wilbratte has worked in the financial services industry for 30 years and is co-founder of Echelon Financial in Austin, Texas. He received his BBA in Finance and Marketing from the University of Texas.