The 11th hour: Getting your plans in order as retirement draws near

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Two years ago a married couple in their early 60s hired certified financial planner Andrea Blackwelder to answer a problematic question: Do we have enough saved up for retirement?

The husband hated his job and wanted to retire immediately.

"If they had come to me 10 years earlier, they would be in a completely different place [financially]," said Blackwelder, owner of Wisdom Wealth Strategies. "But I had to tell them that he had to keep working for three more years."

She added, "It wasn't what they wanted to hear."

Clock displaying time near midnight
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Financial advisors say that 10 to 15 years before retirement is the right time for workers to take a hard look at whether their savings are on track to match their goals.

"At that point, you've got time to undo any investment mistakes you might have made and make changes," said certified financial planner Warren Arnold, a vice president at The Northern Trust Co. "The adjustments you need to make might not be great, but five years out, the changes would be painful."

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The advice that planners offer their clients with five years or less until retirement contrasts with advice they give those 10 or 15 years out.

According to a recent Gallup poll, the average retirement age is 62, up from 57 in 1991. That means most people should begin looking closely at their nest egg in their mid- to late 40s.

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"That's when … they are closer to retirement than they are to the start of their career," said Blackwelder at Wisdom Wealth Strategies.

Additionally, she pointed out, people age 45 to 55 are typically in their prime earning years. "It may be possible to save more than in your 30s, when you were having kids and buying a house," she said. "You have to take advantage of that."

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That means steering every possible dollar into a retirement plan.

The 2014 contribution limit for workplace retirement accounts such as 401(k) plans is $17,500; for an individual retirement account it's $5,500. Also, once you hit age 50, you can stash away additional pretax money per year using so-called catch-up contributions of $5,500 for a 401(k) and $1,000 for an individual retirement account.

Additionally, maxing out your contributions can lower your tax bill.

Another issue that advisors discuss with clients in their 40s and early 50s is college costs for their children.

Retirement saving should trump all

Blackwelder and other planners say saving for retirement should always remain parents' top concern. If your college savings are dismal, a lot of financial aid is out there in the form of scholarships, grants and loans.

"Obviously, college is a huge priority at that time, but no one will give you a retirement loan," Blackwelder said. "You don't do your kids a favor if you pay for college and then you're living with them later."


"The last five years before retirement is the 'red zone.' Just like in football, when you're 20 yards from a touchdown, everything a person does has significance." -Warren Arnold, vice president at The Northern Trust Co.

Certified financial planner Kevin Meehan said another key consideration for 40- and 50-somethings is the tax implications of their retirement savings.

"Everyone knows to diversify your investments, but you have to diversify your tax outcomes, too," said Meehan, regional president for Chicago at Wealth Enhancement Group.

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Generally, a retiree's income will come from one of three types of accounts: tax-advantaged, tax-free or taxable.

"When you take from each of those buckets, you have a different tax outcome," Meehan said. "Fifteen years out, we can make changes, but if you're on the cusp of retirement, you have less flexibility."

For instance, it might make sense to move money from a tax-deferred IRA to a Roth IRA. Contributions into a Roth IRA are taxable, but withdrawals are not.

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"I tell clients that the last five years before retirement is the 'red zone,'" Northern Trust's Arnold said. "Just like in football, when you're 20 yards from a touchdown, everything a person does has significance."

He warned, "The stakes are high."

The five-year checkup

At five years before retirement, risk tolerance is reevaluated. Arnold helps his clients insulate their portfolios by putting at least five years' worth of retirement income into high-quality bonds with some inflation protection. The rest goes into riskier assets, like stocks.

"The idea is to put some money in [safer] places in case you have to deal with the market's ups and downs," he said.

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A checkup on debt is also important at the five-year mark.

"Ideally, I like to get clients' debt down to zero before they retire," Arnold said. "I want to get rid of nondiscretionary spending as much as possible."

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According to Blackwelder at Wisdom Wealth Strategies, the conversation also changes from generalizations.

"We start getting really specific about distribution," she said. "We determine how to create an income strategy instead of a savings strategy."

She added that, depending on the client's age, it's also important to discuss projected medical needs, like health insurance, Medicare and long-term care.

Dotting all your I's

Within a year or two before retirement, advisors review every detail of a client's retirement plan, including details related to estate planning and life insurance needs.

"We make sure we thought of everything," Blackwelder said, explaining that if she's been working with a client for 10 years, by the time retirement is imminent, she wants to be certain there are no surprises.

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As for her client who was told he couldn't retirement immediately?

"I got a call about a month ago that he's going to retire now, come hell or high water," Blackwelder said. "I told him my concern is not the short term, but he's choosing to take the risk."

—By Sarah O'Brien, special to CNBC.com