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Retirement Countdown

For most of your career, retirement is a distant reality. But beginning about a decade out, there are key steps every future retiree should take to help ensure a smooth transition.

“The act of retiring isn’t one and done—it’s a process,” says Rob Williams, CFP® and vice president of financial planning at the Schwab Center for Financial Research. “If you suddenly come to your retirement date without having thought it through, it can be overwhelming.”

So, what are the most important milestones, and when should you tackle them? Here’s a rough timeline and list of what to do before you enter your golden years.

10 years out: Establish a road map

This is the time to take a high-level view of the retirement you envision—and how to get there.

  • Paint a picture—and share it: What does retirement mean for you: travel, a passion project, part-time or volunteer work? As you take stock of your goals, discuss them with your spouse or significant other to ensure your expectations are aligned. “It may sound obvious, but this kind of honest and open discussion can make the transition to retirement easier,” Rob says.
  • Calculate cash flow: On average, retirees spend about 80% of what working households spend on an annual basis, according to the Employee Benefit Research Institute (EBRI). (That said, nearly half spend more in the first few years of retirement than they did in the years immediately preceding it, reports EBRI, as many relocate, travel or pursue long-delayed interests.)

    To estimate how much annual income you’ll need from your portfolio only, take the amount you expect to spend in your first year of retirement and subtract pensions, Social Security and other nonsavings sources of income. In terms of savings, a common rule of thumb is to aim for a portfolio that is 25 times the size of that initial portfolio withdrawal by the time you retire to have a high degree of confidence that your savings will go the distance (see “Do the math,” below).
  • Make catch-up contributions: In 2019, those age 50 and older can contribute an additional $1,000 a year to their IRAs—and an additional $6,000 to their 401(k) accounts. These so-called catch-up contributions may not sound like much, but they can help turbocharge your retirement savings in the decade leading up to retirement.
  • Pay down debt: Start with credit card and other high-interest consumer debt, which unlike a home loan isn’t tax-deductible. “Liabilities are as important as assets when it comes to calculating your net worth and potential income in retirement,” Rob says. “The smaller your liabilities, the more flexibility you’ll have.”
  • Consider long-term care insurance: According to the Department of Health and Human Services, 70% of those over age 65 will require some kind of long-term care—and the earlier you purchase this type of insurance after age 50, the more cost-effective it is likely to be. (You may be able to obtain even lower premiums before age 50, but you’ll be paying them for longer, potentially defeating the purpose of a lower rate.)


Five years out: Dive into the details

“At this point, it’s appropriate to flesh out your plan in a little more detail—ideally, with the help of a financial planner,” Rob says.

  • Adjust asset allocations: The portfolios of many in their prime working years are heavily weighted toward stocks, which can decline in value during bear markets. As you approach retirement, however, you have fewer and fewer years to wait out a recovery, which is why it’s important to start mixing more bonds and other fixed income investments into your portfolio. A typical allocation at retirement can be 60% stocks and 40% bonds, revisited annually thereafter.
  • Look into health care: Since 1970, per capita health care costs have risen nearly 500%, according to the Kaiser Family Foundation. Medicare can cover some costs, but you still may wish to consider Medigap or other supplemental insurance. In any case, “make sure your retirement date lines up with your Medicare start date—typically age 65,” Rob says. If it doesn’t, you may need to plan for other types of coverage (see “Coming of age,” below).
  • Consider downsizing: The bigger the house, the bigger the upkeep costs. A smaller residence, or even a move to a city with a lower cost of living, could help ease your bottom line.


Two years out: Finalize a budget

Now is the time to start tackling specific tasks on a more granular level.

  • Build a budget: List your current expenses and decide which are necessary—such as groceries and housing—and which are discretionary, such as eating out, hobbies and travel. Which of the latter would you like to continue in retirement and which could you live without, if necessary? “Budgeting can be daunting,” Rob says, “but itemizing your current spending habits is a great place to start.” In particular, examine your bills over the past year, from housing and utility payments to a line-by-line review of your credit card statements.
  • Drill down on your income strategy: In addition to the reliable income from pensions and/or Social Security, consider adding more income-generating investments to your portfolio, including annuities, bonds and dividend-paying stocks. And since few people can survive solely on dividends and interest, most investors would benefit from working with a financial planner to create a multiyear income plan, if they haven’t already done so. That said, limiting the first withdrawal to no more than 4% of your total portfolio (adjusted annually for inflation) can help keep income flowing throughout your retirement (see “Built to last,” below).
  • Revisit cash flow: If catch-up contributions alone won’t adequately close the gap between expenses and income, now’s the time to consider cutting back—and saving more. Paying off a mortgage can be a particularly effective strategy, because housing accounts for about a third of total spending for those 65 and older, according to the Bureau of Labor Statistics. Delaying retirement or continuing to work part time are also increasingly common strategies. For the decade ending in 2024, the Bureau of Labor Statistics predicts a 55% rise in labor participation among those 65 to 74 years old and an 86% increase for those 75 and older (compared with an increase of 5% for the labor force as a whole during the same period).


One year out: Prepare for liftoff

The remaining tasks are oriented toward ensuring a seamless transition from career to retirement.

  • Set aside at least a year’s worth of cash: This is what you’ll need, along with income from Social Security or other sources, for everyday expenses throughout the year. If possible, consider allocating another two to four years’ worth of spending needs to cash investments, certificates of deposit, and short-term bonds or bond funds. The more cash you have on hand, the more readily you’ll weather any monetary emergencies without having to sell securities during a downturn.
  • Centralize your accounts: Consolidating various accounts can simplify spending and investment. Deposit predictable income into an account for daily use, along with any other cash you’ve set aside. Consider rolling over company 401(k)s into IRAs that can offer lower fees or more investment options.
  • Check your dates: Failing to sign up for Medicare in a timely manner can have negative consequences, including a lifetime of higher premiums. By the same token, the longer you wait to claim Social Security, the larger your lifetime benefit will be—up to age 70, past which there is no incremental benefit (see “Coming of age,” below).
  • Get a second opinion: Double-check your assumptions with a financial advisor.



Keep an eye on assets and evaluate an estate plan.

Unless you have enough reliable income to weather a severe market downturn, continue to adjust your asset allocation away from equities and toward cash and fixed income. This is also the time to establish an estate plan if you haven’t done so already, or to update your plan if circumstances have changed.

And last, with all that work behind you, sit back, relax and enjoy the kind of hard-won retirement you strove all those years to achieve!

What You Can Do Next

  • Read more guidance about planning for and transitioning to retirement.

  • Do you know how to generate retirement income from your portfolio? Take our quiz to find out.

  • Need help thinking through your transition to retirement? Call 800-355-2163 or visit your local branch to schedule an appointment with a Schwab financial consultant.

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Navigating Difficult Estate-Planning Conversations

Important Disclosures

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

A rollover of retirement plan assets to an IRA is not your only option. Carefully consider all of your available options which may include but not be limited to keeping your assets in your former employer's plan; rolling over assets to a new employer's plan; or taking a cash distribution (taxes and possible withdrawal penalties may apply). Prior to a decision, be sure to understand the benefits and limitations of your available options and consider factors such as differences in investment related expenses, plan or account fees, available investment options, distribution options, legal and creditor protections, the availability of loan provisions, tax treatment, and other concerns specific to your individual circumstances.


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