Is your retirement on the horizon? Financial advisor Brad Allen talks with WTMJ about the smart money moves you should make in the five to ten years before you reach retirement.


Take Inventory

The first step in creating a retirement plan is to figure out what you have. A recent survey shows baby boomers have less than half of what they expect they’ll need for retirement saved in their accounts. It’s much better to realize you’re coming up short when you still have some time to make up the difference. If you find yourself in this situation, start aggressively saving. Remember, 401(k)s and IRAs both have catch-up contributions for people who are over age 50. In 2018, older workers can contribute up to $24,500 in a 401(k) and $6,500 in an IRA. This is also a good time to set up a meeting with a financial advisor who can help you figure out what you have and create a plan of how best to use it. At Drake & Associates, many of our clients come to us for the first time when they are five to ten years away from retirement. We create a comprehensive report on retirement planning, and you can find more details about our 360 approach at

Set Your Goals

When do you want to retire? Five years? Ten? What do you want your lifestyle to be like? Traveling the world or spending time with family? Do you want to stay in the same home or downsize? All of these questions need to be answered before your set your financial plan. Now is a good time to get on the same page as your spouse, as well. I often see couples who have never discussed what their retirement will look like, and they have very different ideas!

Identify Income Streams

Preparing for retirement is about more than increasing savings; you need to set up income streams to make sure your money will last throughout retirement. Social Security is one income stream, but, as we’ve talked about, it is only designed to replace 40% of your income in retirement. Keeping that in mind, now is a good time to create a plan for how you will claim your Social Security benefits. Although pensions are becoming less and less common, millions of Americans are still eligible for a defined benefit pension. Government workers make up about 14% of the labor force, and they will receive a pension. Add to that, about 13% of private sector workers. Other income streams are up to you to create. Talk to your financial advisor about setting up additional income, perhaps through an annuity, dividend stocks or municipal bonds. We’ll dive deeper into this topic next week.

Assess Your Market Risk

If the past couple of weeks have taught us anything, it’s that the markets can be volatile. As you get older and closer to retirement, the amount of risk you’re taking should be decreasing. People who find themselves in a savings shortfall may be tempted to ramp up risk to make up the difference, but that can backfire. If the market takes another big dive, you don’t have time to recover from the loss like you did in your 20s, 30s and 40s. Talk to a financial professional to help you determine how much risk you feel comfortable taking and what is appropriate for your age and financial situation.

Get Roth Ready

Your nest egg could be a ticking tax time bomb, just waiting to go off once you start withdrawing your retirement savings. The money held in your Traditional 401(k)s and IRAs will be taxed as you withdraw it. That means your nest egg won’t go as far as you think it might. For example: let’s say you have a million dollars in your 401(k) and you’re in the 25% tax bracket. That means you’ll have to pay $250,000 when you withdraw your money. So, that $1 million you thought you had is really $750,000. Even if you have enough in pensions and Social Security that you don’t need the money, you can’t avoid the taxman forever. You’re required to start withdrawing at age 70 1/2. They’re called Required Minimum Distributions, or RMDs. You can reduce your tax time bomb by converting some of your savings to a Roth IRA or Roth 401(k). With a Roth, you pay the taxes up front, but you will be able to withdraw the money tax-free in retirement. You will, of course, pay taxes on the money you convert to a Roth, but paying the taxes while you still have a steady income may be a smart money move.

Create Healthy Savings

It’s no secret healthcare is one of the biggest expenses as we get older, and you can prepare for it by bulking up your savings in a Health Savings Account, or an HSA. An HSA is a tax-free account where you can save for medical costs that aren’t covered by insurance. HSAs are usually part of a high-deductible insurance policy. You (and sometimes your employer) put in pre-tax dollars, and that money grows tax-deferred. As long as you use the money for qualified medical expenses, you can withdraw at anytime. But even better, once you turn 65, you can use your HSA funds for any reason without paying a penalty. You will have to pay ordinary income tax for expenses other than medical. Think of an HSA like an additional IRA. However, unlike an IRA, there are no Required Minimum Distributions, so you can keep your money in an HSA long into retirement.

Eliminate Debt

Debt is unpleasant in your working years; it can be detrimental in retirement. Another activity you should be doing at this stage is setting a retirement budget. As you do so, take a look at how much debt affects your budget. You’ll be on a fixed income and any payments for credit cards, student loans, auto loans and your mortgage will take a bite out of that monthly income. Start with your high interest loans, like your credit cards, and make sure to pay those off before retirement. If you can’t pay off your home, car and student loans before you retire, I recommend setting a date in the future you want to have them paid off and create a plan to make it a reality.

Go Job Hunting

It may seem a little strange for me to recommend job hunting when you’re getting ready to quit working permanently, but many retirees find it satisfying to work in the early years of retirement. I’m not talking about getting a new 9-5 gig; there are many part-time jobs that may give you an opportunity to turn a hobby or interest into a few hundred dollars a month in retirement. This can help stretch out your savings, but remember to take into account how working in retirement could affect your Social Security benefits.


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Drake & Associates does not offer tax or legal advice.