7 steps to prepare for your upcoming retirement

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Planning to retire within the next 10 years? Taking these actions now could help bolster your portfolio as you approach your planned retirement date.
After decades of working and saving, you can finally see retirement on the horizon. But now isn't the time to coast. If you plan to retire within the next 10 years or so, consider taking these steps today to help in your efforts toward having what you need to enjoy a comfortable retirement lifestyle. Examining your income sources well in advance of your target retirement date gives you time to make any necessary adjustments.
Start by envisioning the kind of retirement you want. Will you work part time? Volunteer? Travel? Next, develop a realistic picture of the financial resources you may need and then determine if your current ones will be sufficient to support your plan. If you find there is a gap, think about how to accumulate the additional assets you need, or adjust your vision to match your resources. By analyzing your current expenses, you may identify discretionary items that can be eliminated or reduced. "If you look at everything you purchased over the course of a month, you may be surprised at how much you can cut back to have more money to invest for your retirement," says Anil Suri, managing director in the Chief Investment Office at Bank of America.
Here are some steps to consider when you are approximately 10 years away from retirement.

1. Make sure you're diversified and investing for growth

It can be tempting to shy away from stocks to reduce risk, but the growth that stocks may provide is still important at this stage of your life. Consider maintaining a sound mix of stocks, bonds, mutual funds and other assets that fits your risk tolerance, investment time horizon and liquidity needs.
Examining your income sources well in advance of retirement gives you time to adjust your plans, if necessary.
A well-balanced portfolio may help you weather downturns and potentially generate the kind of income that you will need to cover expenses in a retirement that could last more than three decades. For more on asset allocation, read this essential guide.Footnote 1 Please note that diversification does not ensure a profit or protect against loss in declining markets.

2. Take full advantage of retirement accounts, especially catch-up contributions

Whenever possible, increase your retirement contributions up to the maximum allowed in your 401(k), IRAs or other qualified retirement plans. Aim to put enough into your 401(k) to qualify for the maximum of any matching contribution that your employer may offer. If you're age 50 or older, or turn 50 at any time during the calendar year, depending on the terms of your retirement plan, you may be permitted to make an additional catch-up contribution.Footnote 2
As you near retirement, consider account consolidation, including combining IRAs of the same type with one institution. This might simplify your investment management and provide a clearer picture of your total retirement assets. Also, review any 401(k) accounts you may still have with former employers, and learn more about 401(k) distribution choices when changing jobs.Footnote 3 Make sure that you weigh the pros and cons before making a choice. Speaking with a tax professional may also be helpful. View the most current 401(k) and IRA contribution limits.

3. Downsize your debt

Consider accelerating your mortgage payments so that the loan will be paid off before you retire. To curb new credit card debt, try paying cash for major purchases. By limiting new debt and reducing existing debt, you can minimize the amount of retirement income that will be spent on interest payments. "If you pay off a credit card that charges 15% interest, it's like earning 15% on a risk-free investment," says Suri.

4. Calculate your likely retirement income

Estimate your predictable income from sources such as Social Security and employer-sponsored pension plans. The rest of your retirement funds likely will need to come from your wages, account-based retirement plan savings and investment accounts and any wages earned in retirement. To make your assets last throughout your lifetime, the old rule of thumb was that you could afford to spend 4% of your portfolio annually in retirement. So if you have $1 million in retirement assets, you could expect to afford to spend roughly $40,000 of that amount per year when you retire. When added to your other savings, Social Security and pensions, is that enough to support the retirement you envision? "Four percent is a good starting point, but it can also be overly simplistic," Suri says. "Your own rate of withdrawal should be personalized and based on a variety of factors, such as age, gender and risk tolerance."

Systematic withdrawal rates

The rate at which retirees can prudently spend or draw down their investments in retirement and have them last their lifetime depends on age and risk tolerance. Adhering to these rates will allow retirees to be 90% certain of not exhausting their wealth.Footnote 4
Retirement age Systematic withdrawal rates
60 3.88%
65 4.14%
70 4.44%
75 4.86%
Source: Anil Suri, Nevenka Vrdoljak, Yong Liu and Cristian Homescu, "Beyond the 4% rule, determining sustainable retiree spending rates," Chief Investment Office, January 2024.
The advantage of looking at these income sources well in advance of retirement is that it gives you time to adjust your plans, if necessary. Options for boosting your retirement funds include:
  • Postponing your retirement date and working longer
  • Reducing your discretionary expenses
  • Deferring Social Security payments (each year you delay after your full retirement age, your monthly benefits grow by 8%, until age 70)
The longer you put off tapping into your retirement nest egg, the more likely your savings will last.

5. Estimate your retirement expenses

Some expenses, such as healthcare, may be higher later in life, while others, such as commuting or clothing costs, may decline. What you spend will depend on how you live during retirement. If you expect to travel widely, for example, your projected costs might even be higher than they are now, while you're still working.

6. Consider future medical costs

If you are Medicare eligible (generally, age 65 or older), Medicare may help cover the majority of your hospital and medical expenses. If you elect Original Medicare (Part A & B) versus Medicare Advantage (Part C), you may want to consider supplemental coverage (Medigap) to help pay for out-of-pocket expenses, prescription drug coverage (Part D) to help cover medications,Footnote 5 and private insurance to help cover dental, vision and hearing care. All of these expenses are likely to rise as you get older. Moreover, Medicare doesn't cover most long-term care costs. Learn more about how you can prepare for healthcare costs in retirement.
To help protect your retirement nest egg, consider buying long-term care insurance, which can help with expenses such as home health aides. If you buy coverage now, your premiums will be lower than if you wait a few years, and you'll be less likely to be rejected by insurers.
If you are enrolled in a high-deductible health plan and are eligible to contribute to a health savings account, consider putting in the maximum contribution. The money is tax-advantaged, but distributions may be subject to federal income tax, including an additional tax for withdrawal before age 65, if they are not used for qualified medical expenses. Money that you don't spend can accumulate with tax-free compounding until you need it for qualified medical expenses during retirement.

7. Plan where you will live

Where you retire could have a big impact on your expenses. For example, if you sell your house in an expensive location and move to a condo in a low-tax state, your expenses could decline sharply, perhaps freeing income to pay for other priorities. You may also consider staying in your town or city but moving to a smaller home that's more financially manageable. On the other hand, you might elect to live in an area with high living costs and taxes so that you can be near grandchildren or move to a cosmopolitan city — a move that could require you to economize.

It's never too late to get started

When your planned retirement date is a decade away it can seem like a distant event. But it's important to plan carefully and set realistic goals so that time is on your side and can help you have the means to enjoy the sort of retirement you have always dreamed of.
Even if you started saving and investing for retirement late, or have yet to begin, it's important to know that you are not alone, and there are steps you can take to increase your retirement savings. "It's never too late to get started," Suri says.

Next steps

Opinions are as of 11/21/2023 and are subject to change.

Footnote 1 Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

Footnote 2 Currently, eligible employees who are age 50 or over at the end of the calendar year can make annual catch-up contributions to certain retirement plans (see the annual contributions limits guide (PDF)). Effective January 1, 2025, under the SECURE ACT 2.0, eligible employees age 60 to 63 at any time during the applicable year will be able to contribute even more to 401(k)s that permit such contributions — $10,000 (as indexed) or 150% of the standard catch-up amount in 2024, whichever is greater.

You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information visit our rollover page or call Merrill at 888.637.3343.
Footnote 4 Numbers are subject to change.

Footnote 5 Most Medicare Advantage Plans include Medicare prescription drug coverage (Part D).

This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., ("Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S" or "Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks.

Opinions are subject to change due to market conditions and fluctuations. Any investments or strategies presented do not take into account the investment objectives or financial needs of particular investors. It is important that you consider this information in the context of your personal risk tolerance, time horizon, liquidity needs and investment goals. Always consult with personal professionals before making any investment decisions, including a tax advisor.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
This material should be regarded as educational information on Social Security and is not intended to provide specific advice. If you have questions regarding your particular situation, you should contact the Social Security Administration and/or your legal advisors.

This material should be regarded as educational information on healthcare and is not intended to provide specific advice. If you have questions regarding your particular situation, you should contact your healthcare, legal and/or tax advisors.

Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state.