If you have identified 2020 as the year you’re going to retire—congratulations! It’s exciting to start thinking about your next life stage, but transitioning into retirement takes careful preparation and planning to make sure your financial needs are covered throughout your retirement (which is why establishing a relationship with a financial advisor several years before retirement can be so beneficial). Before you jump headfirst into retirement, there’s a few steps you can take now to help prepare you for the golden years.

Step 1: Revisit Your Long-Term Plan for Years Ahead

Now is a good time to meet with your advisor and revisit your plan for retirement, particularly what income sources you have and how much you’ll need to withdraw from your retirement accounts. Your advisor can help you create a withdrawal strategy to help maintain your lifestyle throughout retirement.

Not to mention, your plans for retirement may have changed since you first started setting aside money, which means your disbursement schedule might also need to shift. When you first started saving for retirement, you probably shared the idea that most people have: that your spending gradually declines in your non-working years. But the reality is that most people close the working chapter of their life and have a desire to travel, remodel their home, or make some other large purchases in the years following retirement which actually create a spike in spending for the first few years. You may also have another spike later in retirement as your health care needs rise.

*This is a hypothetical example and is not representative of any specific situation.

Step 2: Determine When to Claim Social Security

Whether you take social security right when you retire or decide to wait can have a large impact on your long-term financial plan.

Reduced benefits are available starting at age 62, but drawing benefits sooner than your full retirement age (which varies depending on the year you were born) will permanently reduce the payout you are eligible to receive. You might decide to draw benefits early if you need an immediate source of income to cover living expenses or if you're the lower-earning spouse and want the higher earner to be able to continue working.

On the other hand, if you elect to delay benefits until after full retirement age, you will receive a permanently increased benefit. Delaying benefits as long as you can up to age 70 will increase the amount you are eligible to receive. It might be more prudent to hold off on drawing benefits if you’re still working, can tap other sources of income to cover expenses or if you are the higher earner and want to ensure the largest benefit for your spouse should you pass away first.

Each situation is unique, which is why it's important to talk through your individual circumstances with a financial advisor.

**For illustrative purposes only, assumes a full retirement benefit amount of $1,000 at age 66.

Step 3: Take a Walk in Your Future Self's Shoes

Your plan for retirement might look great on paper, but until you try out living on that retirement income you won’t actually know if it will work for you. Which is why we recommend taking a month or two before you retire to try living on your new budget and see how it goes.

Stick to the income you expect to be receiving after you quit working and you might find that it’s not enough to fund the lifestyle you desire. If that’s the case, talk to your financial advisor about possible adjustments to increase that income without dipping too far into your savings.

However, you might find that your retirement income will be more than you need, in which case you might consider decreasing your withdrawals to potentially keep your overall income in a lower tax bracket. Minimizing your Adjusted Gross Income (AGI) could have more benefits than simply lowering your tax bill for that year, including the possibility of lowering your Medicare premiums later in retirement.

Step 4: Organize Your Investments to be as Tax-Efficient as Possible

You want to make the most of your retirement, and you deserve to keep more of what you earn. If you haven’t already, take an inventory of all of your accounts and consult with your financial advisor to decide if your money is organized in the most tax-efficient way possible.

For example, if most of your savings is in tax deferred accounts, you might benefit from a Roth IRA conversion, which is when you withdraw money from a Traditional IRA, pay the taxes owed, and then re-invest the funds into a Roth IRA where it will provide asset diversification down the road (not to mention benefit from tax-free growth and tax-free qualified withdrawals). Depending on your situation, a Roth conversion could help you pay taxes now while you’re in a lower income bracket and help you avoid paying higher taxes later because of large required minimum distributions when you reach age 70 ½.

Step 5: Make Sure Your Estate Plan is in Order

If you’ve already created an estate plan in the years leading up to retirement, it could be worth revisiting just to make sure you’re still satisfied with how your estate will be divided. This is particularly true if you’ve had new additions or deaths in the family since the plan was originally created.

While each estate plan will be unique, there are some common aspects to estate planning that you may be familiar with, including a will, power of attorney, a health care directive and trusts. Your financial advisor can help you efficiently transfer assets to your heirs by working to reduce the size of your taxable estate and minimize or defer taxation while also providing liquidity for the payment of estate settlement costs and taxes. Other plans could include creating a legacy with gifts to charities, churches or other organizations, business succession planning or the special needs of a particular family member.

These five steps are not the only things you should be doing before you retire in 2020, but they are a solid foundation to help ease you into the golden years with peace of mind. You deserve the retirement of your dreams, which is why it’s important to prepare for the realities of your retirement—it can lead to the difference between a retirement you want and a retirement that you settle for. Download a copy of our guidebook, 11 Retirement Realities You Need to Know and be more prepared for your 2020 retirement.


The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 50 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Brent Muller

Brent Muller

Senior Vice President, Financial Advisor

ChFC®, Series 7 Securities Registration,1 Series 66 Advisory Registration, † Insurance License Brent has been advising Wealth Enhancement Group clients since 2007. As a believer in the power of teamwork, Brent often leverages the vast knowledge and resources of Wealth Enhancement Group to provide great service and smart strategies to his clients. Specializing in values-driven planning and retirement income planning, he takes pride in his ability to listen...Read More