The Pre-Retiree Financial Planning Guide

Retirement Guide
Written By Logan Sanders, CFP®

Making the Most of the Window Before Retirement

By Logan Sanders, CFP® and Scott Leise | Retirement Planning | Financial Planning for Pre-Retirees

Most people think of retirement planning as something to tackle in the year or two leading up to their retirement date. In reality, the planning window opens much sooner. Early on, the focus is relatively straightforward: save consistently and invest appropriately for your timeline. But planning naturally shifts and grows more complex as life does. Better jobs bring better benefits and new decisions. Houses, kids, and competing financial priorities add layers.

Around age 50, the complexity accelerates in a more structured way as catch-up contributions become available and the retirement horizon starts coming into focus. From there it continues to build through retirement itself, typically peaking around the time required minimum distributions (RMDs) begin. The decisions become more interconnected, the tax implications more layered, and the moves available to you more time-sensitive. This guide is designed for people in the years leading up to retirement, where the planning is no longer just about saving more but about understanding what tools and opportunities are available and making intentional use of them.

When you are ready to dig into retirement itself, including Social Security, withdrawal sequencing, Medicare, Roth conversion strategy, and lifetime income planning, see our Retiree Financial Planning Guide.

What follows covers the concepts, ideas, and considerations we see come up again and again with real clients in this window. It is meant to give you ideas to consider and explore, not to tell you what to do. Your finances are just as much behavioral as they are mathematical, and every situation is unique, which is why your neighbor's approach or a generic rule of thumb can lead you astray. Be honest with yourself about your habits, your emotions, and what you actually want retirement to look like. A plan only works if you stick with it, and you are far more likely to stick with one that is genuinely built around your life.

Before diving into the strategies and moves below, we strongly recommend reading our companion Retirement Modeling Guide first. It walks through how to build the foundational model that makes every decision in this guide meaningful: your spending baseline, your income picture, the gap between them, and how taxes interact across the phases of retirement. The strategies here are only as useful as the model that tells you which ones apply to your specific situation.

A Note on Taxes

Taxes are the thread running through nearly every decision in this guide, and the complexity goes well beyond your federal bracket and this guide. State tax rules, hidden surcharges like IRMAA, income thresholds that trigger unexpected consequences, and the way different income sources stack on top of each other can all affect your outcome in ways most people never see coming. We flag these throughout, but the broader point is worth saying now: the goal is not just to minimize taxes this year. It is to minimize them over your lifetime and beyond.

Here are just a few examples of how much state rules can vary:

  • Nebraska offers a one-time lifetime election to exclude capital gains on appreciated employer stock from state income tax entirely.
  • Many states no longer tax Social Security (including Nebraska, Iowa, and California among others).
  • Some states like Iowa exempt most retirement income from state tax altogether.

These kinds of provisions are rarely advertised. Your state's specific rules deserve a close look with a CPA who knows them well. There may be gems worth finding.

How to Navigate This Guide

This guide covers the pre-retirement window in depth. Use the approach that works best for how you like to read.

  1. Read it sequentially if you want a complete picture of what matters most in the 10 years before retirement and why.
  2. Use Ctrl+F (Cmd+F on Mac) to search for a specific topic. Try: Roth conversion, backdoor Roth, healthcare, ACA, deferred comp, NUA, long-term care, or estate.
  3. Jump to what is most relevant using the Table of Contents links below.

Table of Contents

At a Glance: The Final Working Stretch

Key moves in this section:

  • ✓ Establish your baseline. Model a retirement window with multiple scenarios, not a single date. This is also your time to look at your accounts for tax diversification and asset location.
  • ✓ Audit for spending leaks and savings shortfalls, then determine if maximizing catch-up contributions makes sense.
  • ✓ Identify Roth conversion and backdoor Roth opportunities before they close.
  • ✓ Plan explicitly for the health insurance gap if retiring before age 65.
  • ✓ Build a sequence-of-return buffer gradually over the years leading up to retirement.
  • ✓ Address long-term care planning while you still have options.
  • ✓ Update all estate documents and beneficiary designations.

Tax considerations:

  • → Tax diversification across pre-tax, Roth, and taxable accounts gives you flexibility to manage taxes in retirement. Do not assume traditional contributions are always best just because you are in a high bracket today.
  • → The level to which Roth conversions may be beneficial while still working are often, but not always, limited by income and applicable tax rates. Modeling future opportunities now shapes the right contribution decisions today.
  • → The backdoor Roth and reverse rollover can open Roth access for high earners who think they are locked out.
  • → HSA contributions are triple tax-advantaged. If you are eligible, this is one of the best accounts available to you.
  • → If charitably inclined, funding a Donor-Advised Fund in a high-income year creates an immediate itemized deduction while giving you time to direct the grants. It can also create additional space for Roth conversions and other tax moves.
  • → State tax laws vary significantly and are often overlooked. Know your state's rules.
  • → If retiring before 65, large withdrawals or conversions can eliminate your ACA Premium Tax Credit eligibility. Tax diversification makes this easier to manage.

Common pitfalls:

  • ⚠ Doing nothing. Not understanding your current position and where you want to go can be the most expensive mistake in late career and can cost you throughout your retirement.
  • ⚠ Focusing only on this year's taxes while ignoring lifetime tax strategy. RMDs, IRMAA, and the jump to single filing status after losing a spouse can all create expensive surprises later.
  • ⚠ Underestimating healthcare costs in the years before Medicare begins.
  • ⚠ Assuming income limits rule out Roth contributions without exploring backdoor options.

The Final Working Stretch: Late-Career Planning (Roughly Ages 50 to 65)

One of the costliest mistakes people make in late career is not understanding where they currently stand or where they want to go, and doing nothing as a result. Retirement transitions from a far-off idea to a real, albeit often moving, timeline. You can start running real numbers, identify gaps, and make targeted decisions. At this stage, mistakes, including inaction, carry a lot of weight. Time to course-correct is shorter. This is also when many people are still juggling competing demands: college costs for children, aging parents, peak career responsibilities, and their own desire to begin enjoying the fruits of their work.

Clarity is the goal here. Know where you stand. Know your options. Make decisions. Do not drift into them.

Retirement Modeling: Know Your Destination and What You Are Solving For

One of the greatest analogies for this is planning a vacation. Before you figure out how to get there, you need to know where you are going. Many people don’t hop on a bus, plane, or train and see where they end up. Retirement planning works the same way: you need to know your destination before you can decide whether to contribute to a traditional 401(k) or Roth 401(k), whether backdoor Roth conversions make sense, or which of the many other options below are worth pursuing. There will certainly be bumps and adjustments along the way, just like any trip, but having your destination in sight helps when they come up. And like any good vacation, knowing what you want to do once you get there matters too. Some people want to maximize every moment; others want to take their time and enjoy the journey. Retirement is no different, and the right answer is uniquely yours.

We wanted to keep this guide focused on the planning options and strategies, while giving the retirement modeling work the depth it deserves in its own dedicated article. We highly recommend reading our Retirement Modeling Guide before diving into the sections below. It will walk you through how to build the foundation, understand what you are solving for, and identify which actions here are most likely to improve your outcome.

Once you have worked through that foundation, the sections below cover the specific moves available to you in this window and how to evaluate which ones are worth pursuing given what your model reveals.

Potential Strategies to Optimize Your Long-Term Retirement Plan

The Conundrum of Current Cash Flow and Where to Deploy Extra Funds

As many people approach retirement, they are in their peak earning years and oftentimes find themselves with more “disposable” cash flow than ever before. While this brings exciting opportunities, the sheer volume of choices can lead to decision paralysis without an intentional plan in place. There are generally two directions you can go with this disposable cash flow:

  1. Enjoy it now
  2. Build further wealth for the future

Once you’ve modeled your retirement trajectory, the choice between using one or a combination of the strategies below becomes more clear.

Spend on High-Intent, Personally Valuable Experiences and Items Now

The reality is that not everyone enjoys the long, healthy retirement they envisioned. While it’s not fun to think about, unexpected health complications and early mortality are real risks to be considered in the grand scheme of things. Ultimately, we’ve found that the happiest retirees are the ones who find a balance between taking care of their future self through diligent savings today, while remembering to invest in the things and experiences that bring them joy right now.

Retirement modeling is a crucial first step in finding that balance.

  • If your projections are strong and you are comfortable with your current trajectory, spending on "fun" today becomes much easier. In fact, you might discover that you are well ahead of schedule and can safely dial back current savings contributions instead of over-accumulating past what your plan actually requires.
  • If your projections fall short of your desired retirement, knowing that reality right now is incredibly powerful. It allows you to intentionally direct those extra funds toward protecting your future self.

There’s no right answer when it comes to this, but being aware of the trade-offs of your actions can lead to the least amount of regret later on.

Mortgage Paydown

As many people transition towards retirement, they feel most comfortable reducing their known expenses as much as possible. Paying off a mortgage is often one of the most impactful ways to accomplish this and the feeling of being “debt-free” is truly liberating for many people.

It’s also important to note that entering retirement with a mortgage balance is not a structural failure, nor is a full payoff required for a successful plan. Before you lock up liquid cash into home equity, weigh these core variables:

  • Personal Feelings Towards Debt: For some individuals, the emotional peace of mind of a paid-off home outweighs any mathematical optimization. If debt causes you genuine anxiety, that behavioral reality matters more than a spreadsheet.
  • Tax-Adjusted Mortgage Interest Rate: If you locked in a historically low fixed rate, the opportunity cost of bypassing potentially higher-returning market investments or guaranteed fixed-income instruments can be steep. What is not as obvious, and is frequently overlooked, is that even “moderate” to “high” mortgage interest rates can be reasonable to hang onto once the overall tax impacts are considered.
With the passing of the One Big Beautiful Bill Act in 2025, the maximum State and Local Tax (SALT) deduction was temporarily raised from $10,000 up to $40,000 for many taxpayers between 2025-2029 (indexed for inflation; total cap is $40,400 in 2026). As a result, more people are itemizing deductions on their tax returns again. Because of this shift, your mortgage interest paid may once again be a deductible expense that saves you money on taxes, significantly reducing the total net, after-tax cost of carrying that loan.
  • Liquidity & Equity: Once cash is sent to the mortgage company, it cannot easily be accessed in an emergency or for other desired spending without jumping through financing hurdles.
  • Projected Fixed Expenses vs. Guaranteed Income in Retirement: If your guaranteed income streams (like Social Security, pensions, or income annuities) easily cover your baseline living expenses including the mortgage, maintaining the loan carries significantly less risk than if you are entirely dependent on portfolio withdrawals to make the house payment.

Catch-Up Contributions

Once you turn 50, the IRS allows additional catch-up contributions to retirement accounts beyond the standard limits. This is not automatically the right move for everyone, but it is a powerful lever when used with intention. Limits adjust annually; check current IRS guidelines and remember that different types of accounts have different contribution deadlines.

  • 401(k) and 403(b) Plans: The standard contribution limit plus catch-up contributions become available once you are 50. In 2026 the catch-up contribution limit is an additional $8,000 above the normal limit of $24,500. Note that high-income earners above certain thresholds may be required to direct catch-up contributions to a Roth account rather than pre-tax.
  • IRA Catch-Up (Traditional & Roth): In 2026, the catch-up amount is an additional $1,100 above the standard contribution limit of $7,500.
  • HSA Catch-Up: If you are enrolled in an HSA-eligible high-deductible health plan, you can contribute an extra amount per year once you reach age 55. In 2026, the catch-up contribution amount is $1,000 per person. However, it’s important to know that spouses must contribute their applicable catch-up contributions into their own HSA, not their spouse’s.
  • SECURE 2.0 Act “Super Catch-Up”: If you are between ages 60 and 63, a higher catch-up contribution may be available in your employer plan. In 2026, this super-catch up is an additional $3,250 above the normal catch-up listed above, making the total catch up contributions available equal to $11,250 for people in this age range. It is worth confirming with your plan administrator or advisor if your specific employer plan supports this feature.

Non-Deductible Traditional IRA Contributions and Roth Conversion: The Backdoor Roth IRA

High earners are often told they cannot contribute to a Roth IRA because their income exceeds the IRS limits. That is true for direct contributions, but there is a legal workaround that has been widely used for years: the backdoor Roth.

The strategy works like this: you make a non-deductible contribution to a traditional IRA (which has no income limit), then convert that amount to a Roth IRA. The conversion is taxable only on any earnings between contribution and conversion, which is typically minimal if done promptly. The result is money in your Roth account, regardless of your income level.

There is one important complication: the pro-rata rule. If you already have pre-tax dollars sitting in any traditional, SIMPLE, or SEP IRA accounts, the IRS treats all your IRA money as a single pool when calculating the taxable portion of a conversion. This can significantly reduce the tax efficiency of the backdoor strategy.

Reverse Rollover: Clearing the Way for a Clean Backdoor Roth

One solution to the pro-rata problem is the reverse rollover: moving your existing traditional IRA balance into your current employer's 401(k), if the plan accepts incoming rollovers. Once your pre-tax traditional, SIMPLE, and SEP IRA balances are at zero, the only remaining funds factored into the year-end pro-rata calculation should be your after-tax contribution and any earnings generated before the conversion.

Not every 401(k) plan accepts rollovers from IRAs, so this requires checking your plan documents or speaking with your plan administrator. This move needs to happen while you still have access to an employer plan. Once you leave your job, this option typically closes.

On timing: the IRS uses your December 31 IRA balance for the pro-rata calculation. If you complete the rollover before December 31, your traditional IRA balance is zero at year-end and the backdoor conversion in that same year is clean. You do not need to wait until the following year to make the non-deductible contribution and convert.

  • Confirm your 401(k) plan accepts IRA rollovers.
  • Roll the pre-tax IRA balance into the 401(k) before December 31 to clear the pro-rata complication.
  • Contribute to a traditional IRA (non-deductible), then convert to Roth.
  • Document your non-deductible IRA contributions on IRS Form 8606 each year and ensure the tax treatment is reported correctly on your Form 1040.

One practical note: just because the backdoor Roth is available does not automatically mean it is worth pursuing. The annual contribution limit is relatively modest. If your employer's 401(k) has poor investment options or high fees, it is worth weighing whether the reverse rollover and the additional administrative steps are worth it for the amount you can contribute each year.

Mega Backdoor Roth

For those who have already maxed out their 401(k) contributions and are looking to get more funds into retirement accounts, the mega backdoor Roth can open up the ability to significantly grow your Roth balance, potentially by tens of thousands of dollars per year.

The strategy requires two things from your employer plan: the ability to make after-tax contributions beyond the standard employee pre-tax or Roth contribution limits, and either an in-plan Roth conversion feature or the ability to take in-service withdrawals of after-tax funds. Either mechanism works. If these conditions are met, you can contribute after-tax dollars up to the overall IRS annual addition limit (which includes your employee contributions, catch-up contributions if applicable, and any employer contributions). Because you already paid tax on the after-tax contributions, only earnings between the time of the contribution and conversion are taxable, which is typically minimal.

Hypothetical Example: Maximizing the Mega Backdoor (Age 50+)

To see how this could work in practice, let’s look at a hypothetical 50-year-old worker trying to maximize their contributions:

  • The total annual additions limit is **$72,000** for someone younger than 50 ($80,000 for ages 50–59 & 64+, and $83,250 for ages 60–63).
  • If a 50-year-old employee has the following funds contributed, their baseline total sits at **$42,500**:
    • $24,500 Regular 401(k) Contribution (Traditional or Roth)
    • $8,000 Catch-Up Contribution (Likely Roth depending on income levels)
    • $10,000 Employer Matching Contribution (This varies by plan and employer)
  • The remaining **$37,500** of room ($80,000 limit minus the $42,500 already contributed) is where potential "after-tax" contributions and a subsequent conversion to a Roth account come into play.

Some potential next steps to consider to see if this is right for you:

  • Ask your plan administrator specifically whether the plan allows after-tax contributions beyond the regular pre-tax and Roth limits.
  • Ask whether the plan offers in-plan Roth conversions or in-service withdrawals of after-tax contributions. Either one enables the strategy.
  • Understand how your plan calculates employer matching contributions before ramping up after-tax contributions. Some plans match based on a percentage of each paycheck contribution, meaning if you front-load contributions and hit the employee limit early in the year, you could miss out on match dollars for the remaining pay periods. This is sometimes called the true-up provision, and not all plans automatically correct for it at year end.
  • Be aware of the total contributions your employer is likely to make to your 401(k) throughout the year (matching, profit-sharing, or other). All of these are included in the total annual additions limit calculation. Because some of these employer deposits occur late in the year, or even during the following calendar year, failing to forecast them accurately can cause you to unintentionally over-contribute and trigger an annual additions limit violation.
  • Some plans require a pro-rata distribution when taking in-service withdrawals, meaning a proportional amount of pre-tax money must come out alongside the after-tax funds. The mechanics of managing that can get complicated quickly depending on your plan's specific requirements, including which type of IRA account is acceptable for the rollover. Getting the details right matters here.
  • The cleanest version of this strategy is a plan that offers automatic in-plan Roth conversions, where after-tax contributions are converted to Roth automatically without requiring manual withdrawals, rollovers, or ongoing tracking. If your plan has this feature, it simplifies the strategy considerably and eliminates most of the administrative burden.

Not all plans allow this, and the plan documents do not always make it obvious. A direct conversation with your plan administrator using these specific terms is the most reliable way to find out. If your plan does allow it, this is one of the most tax-efficient accumulation strategies available to high earners.

Setting Up for the Roth Conversion Window

The largest Roth conversion opportunities typically come after you retire. But before you can plan for that window, you need to know whether one is likely to exist for you. Again, this is why the retirement modeling we highlight in our Retirement Modeling Guide is so important.

Your expected future income picture, what you will likely receive from Social Security, pensions, pre-RMD investment distributions, RMDs themselves and perhaps most importantly, when all of these income sources will begin, determines whether there is likely to be a low taxable-income window to convert into. That answer helps shape what you should be doing with contributions right now.

Remember when we say “High” or “low” taxable income years, these are all relative and should be viewed through your situation. Ultimately the goal of conversions is to pay taxes (both obvious and hidden) at a lower total rate than what you saved when you originally deferred the funds and/or the expected total rate you or your beneficiaries would pay if you wait to distribute the funds later on.

If a low taxable-income window is likely to be available, what you do with contributions today should build toward taking advantage of it. If not, the calculus shifts and directing some contributions to Roth now or to taxable accounts may make more sense than continuing to pile into pre-tax accounts.

The goal is not to maximize any single account type. It is to arrive at retirement with enough diversity across pre-tax, Roth, and taxable accounts that you have real flexibility to manage taxes year by year. The conversion window covered in detail in the companion retiree guide is where that flexibility pays off.

Deferred Compensation: A Decision Worth Thinking Through Carefully

Many executives and high earners have access to non-qualified deferred compensation plans, which allow you to defer a portion of your salary or bonus into a future tax year. The appeal is intuitive: defer income today, pay taxes later when you expect to be in a lower bracket. But the calculus is more nuanced than it first appears, and the instinct to defer as much as possible is not always right.

A few things worth working through before deferring:

  • Tax bracket assumptions: Deferring makes sense if you genuinely expect to be in a lower bracket when you receive the income. If your retirement income picture, including Social Security, RMDs, pension, and investment distributions, puts you in the same or higher bracket, the deferral may not provide the tax benefit you expect. The money does grow on a tax-deferred basis inside the plan, but that alone is not a slam-dunk reason to defer.
  • Single stock and concentration risk: Some plans allow you to direct deferrals into company stock as an investment option, and some companies pay a portion of annual bonuses in company stock that can be deferred under the plan. In either case, you are accepting additional concentration in a single company on top of whatever equity you already hold outside the plan. The colleague who says they are deferring everything into company stock may be taking on more risk than they realize, separate from any tax consideration.
  • Liquidity: Deferred compensation is typically locked up until a specific date or event. If you have near-term spending needs, illiquidity can become a real problem.
  • Company credit risk: Unlike a 401(k), nonqualified deferred compensation is an unsecured promise from your employer. If the company encounters financial difficulty, your deferred compensation can be at risk. This is a consideration many participants overlook.
  • Distribution timing and payout options: With certain plans, “date certain” style elections often lead to a payout of your deferred compensation at the earlier of your separation from service or a certain date. When paired with a “lump-sum” payout option, this can lead to disaster if all of your deferred compensation is triggered and paid out as a lump sum upon your separation of service, leading to a potentially massive tax bill.
  • Plan design matters: Distribution timing, payout options, and investment choices vary significantly by plan. Understand your specific plan before committing to large deferral, to ensure your elections fit your long-term tax plan.

Deferred compensation can be a powerful planning tool in the right circumstances. But it deserves careful analysis specific to your tax situation, concentration risk, and liquidity needs before treating it as a default yes.

Net Unrealized Appreciation (NUA): A Long-Horizon Accumulation Consideration

Net Unrealized Appreciation is one of the more powerful and underutilized tax strategies available to people who hold significantly appreciated employer stock inside a 401(k). It is also one of the more nuanced, and the right answer depends heavily on your specific situation and your plan's rules. The purpose of this section is awareness: to make sure you know this option exists and understand enough to explore it seriously with a qualified advisor before you retire and the window closes.

One thing worth saying clearly at the outset: NUA only makes sense if the benefit outweighs the risks, and concentration risk is real. If you hold significant employer stock inside your 401(k), you likely also hold employer equity outside the plan through RSUs, deferred shares, or options. Add to that the fact that your paycheck comes from the same company, and a meaningful portion of your financial life may already be tied to a single employer's fortunes. This does not mean NUA is the wrong choice, but concentration risk should be an explicit part of the analysis, not an afterthought.

How It Works: A Hypothetical Scenario

Imagine you have a **$1,000,000** 401(k), of which **$100,000** is company stock with a cost basis of **$20,000**. The other $900,000 is in mutual funds and other investments.

The Standard Route: If you roll the entire $1,000,000 to a Traditional IRA, everything is straightforward: the full balance grows tax-deferred, and every dollar you eventually withdraw is taxed as ordinary income, including the company stock and all its future appreciation.

The NUA Route: You take a qualifying lump-sum distribution of the entire plan in a single tax year. The $100,000 of company stock is distributed in-kind directly into a taxable brokerage account, while the remaining $900,000 is rolled over to an IRA. Quick note: depending on how your plan executes the distribution, mandatory withholding may apply to the rollover portion, which creates a planning consideration covered below.

  • At distribution, you owe ordinary income tax only on the **$20,000 cost basis** of the stock.
  • The remaining **$80,000 of NUA** is not taxed at that point.
  • When you eventually sell the shares, that $80,000 is taxed at long-term capital gains rates regardless of how long you hold the shares after the distribution, and it is not subject to the 3.8% Net Investment Income Tax that applies to other investment income above certain thresholds. When compared to the ordinary income tax rates that these funds would have been subject to if NUA is not used, this can present a favorable tax outcome. The shares are treated on a pro-rata basis, meaning you do not have to sell everything at once. Selling in tranches over multiple years gives you meaningful control over when and how much gain you realize each year.

Why the Planning Starts Now

The NUA opportunity depends on how much appreciation has built up inside the plan over time. The more the stock has appreciated above its original cost basis, the more powerful the strategy. That appreciation accumulates over years, which is why the planning starts long before retirement. There are also several things worth understanding and planning around well in advance:

  • Concentration risk: Assess your total employer stock exposure across the plan, any equity compensation outside the plan, and your income dependence on the same company before deciding how much employer stock to hold inside your 401(k).
  • Selling inside the plan eliminates the opportunity: If you diversify the employer stock by selling it inside the plan and reinvesting in mutual funds, the NUA opportunity disappears permanently. That is a deliberate tradeoff worth understanding before you make it.
  • Know whether your plan will split the transaction: Some plans allow the employer stock to be distributed in-kind separately while the remaining assets roll directly to an IRA as a trustee-to-trustee transfer. Others require everything to come out together, which triggers mandatory 20% withholding on the non-stock portion. On $900,000, that is $180,000 withheld that you need to replace out of pocket within 60 days to complete the full rollover. For most people that requires deliberate planning well in advance, not something you can solve in the weeks before retirement.
  • Get your advisor and CPA involved early: The mechanics vary significantly by plan, and this is not a strategy to figure out the week before you retire. The window closes when you leave the plan.
  • Other considerations worth exploring with your advisor: Whether the stock is publicly traded or closely held affects valuation and marketability of the distribution; the NUA portion does not receive a step-up in basis at death, meaning heirs inherit the original basis and owe capital gains tax when they sell; and state tax treatment of NUA distributions varies. This list is not exhaustive, which is exactly the point.

NUA does not apply if you hold no employer stock in the plan, and it is not right for everyone who does. But for the right person it is a meaningful opportunity that gets completely missed by defaulting to a rollover.

Donor-Advised Funds: A Powerful Tool for the Charitably Inclined

A Donor-Advised Fund is a charitable giving account that lets you contribute assets, take an immediate tax deduction, and then recommend grants to the charities of your choice over time. The deduction happens in the year you contribute. The grants can happen over months or years.

A few important caveats before going further:

  • A DAF contribution generates an itemized deduction, which means it only reduces your taxes if your total itemized deductions exceed the standard deduction. For many people in high-income years, that threshold is cleared.
  • Under current tax law (starting in 2026), only the amount of your contribution that exceeds 0.5% of your Adjusted Gross Income (AGI) can be included as an itemized deduction.
  • The maximum federal tax savings that can be realized by deducting charitable contributions is 35%. This is only truly impactful for those in the 37% marginal tax rate.

For those who normally claim the standard deduction, a strategy called bunching can unlock substantial tax savings. Instead of making smaller, routine charitable donations annually, you concentrate multiple years' worth of planned donations into a single tax year by contributing all at once to a DAF. This intentional timing can allow you to clear the itemization threshold in your heavy contribution years while taking the standard deduction in others.

For the right person in the right year, a DAF can be remarkably effective. In a high-income year, whether from a large bonus, a business sale, or accelerated income for any reason, a large DAF contribution can significantly reduce your taxable income. The assets inside the fund grow tax-free until you direct them to charity.

  • You can contribute cash, appreciated securities, or other assets. Contributing appreciated stock is often particularly tax-efficient: you avoid capital gains on the appreciation and still receive a deduction for the full fair market value.
  • The deduction in the year of contribution can create additional room for Roth conversions or other tax moves. Though beware that realizing additional income raises the 0.5% AGI floor that contributions must clear to be itemized.
  • There is no requirement to distribute the funds immediately. Some people build up a DAF over high-income working years and distribute to charities throughout retirement.
Important: A DAF contribution is irrevocable. Once you transfer assets into the fund, you no longer have any legal right to them, much like donating directly to a charity. The only difference is that you retain the ability to recommend which charities ultimately receive the grants. Be certain before you contribute.

A DAF is not the right tool for everyone, but for those who give meaningfully to charity, it is worth understanding before a high-income year passes without taking advantage of it.

Investment Considerations and Portfolio Evolution

Sequence-of-Return Risk and Asset Allocation Transitions

Sequence-of-return risk refers to the danger of experiencing poor market returns early in retirement while you are actively drawing income from your portfolio. Unlike an accumulation phase where a bear market just means your future contributions buy at lower prices, early retirement losses are withdrawn from and not recovered the same way.

The relative size of your anticipated distributions early in retirement directly impacts how big of a risk this can be. For example, a retiree that is aggressively distributing from their investments so that they can delay Social Security is more susceptible to Sequence of Returns risk.

A simple example: two retirees with the same average return over 20 years can have dramatically different outcomes if one gets the bad years first and the other gets them last. The one who gets bad years first runs out of money faster, even with an identical average return.

  • Revisit your asset allocation as retirement approaches. A portfolio that is overly conservative may feel safe from short-term volatility but creates real risk from inflation and longevity over a 20-to-30-year retirement. The transition should be thoughtful and gradual, not reactive.
  • Build a cash-flow buffer: Cash or short-term reserves that can fund living expenses for a pre-determined time period without touching long-term investments during a downturn.
  • Establish rebalancing rules in advance: Knowing when and how you will rebalance removes emotional decision-making during volatility.
  • Consider a bucket approach or income flooring strategy to separate short-term needs from long-term growth assets, and explore whether an income annuity makes sense as part of your income floor.

What is the right investment mix for you? No guide can accurately answer that because it depends entirely on your specific situation. How will you react when markets inevitably go down? That is your risk tolerance. How much of your retirement income is dependent on your portfolio performing? That is your risk capacity. The two are often very different, and the gap between them is where costly mistakes tend to happen. This is one area where a good advisor can provide real value, not by delivering the highest return, but by helping you understand what your portfolio is designed to do, making sure it is actually doing it, and being a steady voice when volatility creates pressure to do something you will regret.

Insurance and Risk Management

The Health Insurance Bridge: Plan for This Before You Leave Your Employer

If you are retiring before 65, read this section carefully.

The ACA Premium Tax Credit is one of the most significant and least understood financial levers in early retirement. Under current law, a household managing income carefully can qualify for credits worth tens of thousands of dollars annually.

The credit phases out at 400% of the Federal Poverty Level, which is $84,600 in modified adjusted gross income (MAGI) for a married couple filing jointly in 2026. For ACA purposes MAGI is calculated by starting with your Adjusted Gross Income and then adding back tax-exempt interest, non-taxable Social Security and Tier 1 Railroad Retirement benefits, and untaxed foreign income. That is a hard cliff: exceed it by a dollar and the entire credit disappears. A household with significant assets that draws primarily from taxable and Roth accounts can stay under that threshold and capture credits worth $20,000 or more per year, even with a portfolio in the millions. You can read more about ACA Premium Tax Credits in our detailed blog post: Planning for 2026 ACA Marketplace Premium Tax Credits: How to Avoid the Income Cliff.

Note: the enhanced subsidies that previously extended help further up the income scale expired at the end of 2025. Under current law, the base Premium Tax Credit applies with the hard income cliff described above. The income decisions you make in those years interact directly with both your tax bracket and your credit eligibility.

Beyond the credit question, the simple cost of bridging health insurance from employer coverage to Medicare can easily run $15,000 to $30,000 or more per year for a household. If retiring before 65 is part of your plan, model the healthcare cost explicitly and model how your income decisions in those years interact with your credit eligibility. This deserves serious attention before you leave your employer.

The full breakdown of your options, including COBRA, ACA marketplace plans, and what income management looks like in practice, is covered in depth in our companion retiree guide.

Long-Term Care Planning

Long-term care planning is a conversation that tends to get postponed, often because it requires thinking about scenarios nobody wants to think about and most of us dislike insurance almost as much as taxes. But it is a legitimate part of any thorough retirement plan, and the options available to you narrow meaningfully as you age or if your health changes.

There is no universally right answer here, and the honest truth is that the financially optimal choice only becomes clear in hindsight, like all insurance.

  • Self-insuring: Relying on your own assets to fund care. A reasonable choice for many, but the amount needed is often larger than people assume, and the impact on a surviving spouse's resources deserves explicit consideration.
  • Traditional long-term care insurance: Premiums have risen and products have evolved considerably. Earlier is better for both health qualification and pricing. Products vary significantly in structure, including limited-pay options that cap the premium period and are not subject to rate increases, which can make the long-term cost more predictable.
  • Long-Term Care Partnership Programs: Available in many states, these programs allow a qualifying LTC policy to protect assets equal to the benefits paid if you eventually need Medicaid. Worth understanding if Medicaid planning is part of your picture.
  • Hybrid life/LTC or annuity/LTC products: These address some of the use-it-or-lose-it concern of traditional policies and have become more common. Worth understanding the tradeoffs compared to standalone coverage.
  • Medicaid planning: For those without significant assets, Medicaid may eventually cover nursing home care, but the rules are complex, state-specific, and involve a look-back period worth understanding well in advance.

Whatever path you choose, the best time to choose it intentionally is before a health event forces the issue or you age out of the decision entirely.

Insurance: A Review Worth Doing in Late Career

Most people set up their insurance coverage at various points during their working years and rarely revisit it systematically. As you approach retirement with a growing net worth and a shifting risk profile, a comprehensive insurance review is worth putting on the list.

  • Property and casualty: Review your homeowner's and auto coverage limits. Coverage that was adequate when your net worth was lower may be insufficient today. A significant liability claim that exceeds your policy limits can expose personal assets. Confirm your limits reflect your current situation.
  • Umbrella policy: An umbrella policy provides excess liability coverage above your home and auto policies, typically in increments of a million dollars, and is often surprisingly affordable relative to the protection it provides. For those with significant assets, an umbrella policy is one of the most cost-effective things you can do. If you do not have one, it is worth a conversation with your insurance advisor.
  • Life insurance: Your life insurance needs change significantly as you approach retirement. If you have adequate assets and your dependents are financially independent, term coverage may be expiring right when you no longer need it. Permanent life insurance policies deserve a fresh look to confirm they are still serving a useful purpose in your overall plan.
  • Disability insurance: Typically becomes less relevant once you are retired or no longer dependent on earned income, but worth reviewing in the final working years to confirm you have adequate coverage in place until you transition.

Insurance is not a set-it-and-forget-it decision. A review every few years, or after a significant life change, keeps your coverage aligned with your actual exposure.

Legacy and Estate Planning

Estate Planning and Legal Document Updates

Estate planning is not a one-time task. Life and laws change, and your documents need to keep up. In late career, revisit all of the following:

  • Will: Does it reflect your current wishes, family situation, and asset levels?
  • Durable Power of Attorney: Who has legal authority to act on your behalf for financial decisions if you cannot? This document is critical and often overlooked. One frequently missed detail: the incapacity clause should be specific and clearly drafted. A vague or poorly worded clause can create real obstacles when the document actually needs to be used.
  • Healthcare Proxy / Medical Power of Attorney: Who makes medical decisions if you are incapacitated?
  • Living Will / Advance Directive: What are your wishes for end-of-life care?
  • Beneficiary designations: These override your will. Review every retirement account, life insurance policy, and financial account. Outdated beneficiaries are one of the most common and costly estate planning mistakes.
  • Transfer on Death designations: Many states allow real estate and vehicles to pass directly to a named beneficiary outside of probate through a TOD or beneficiary deed. For some people, combining TOD designations on property with properly named beneficiaries on financial accounts can significantly simplify their estate plan. Worth asking your estate attorney whether your state allows it and whether it makes sense for your situation.
  • Trust considerations: Depending on your state, asset levels, and family situation, a revocable living trust may simplify the transfer of assets and avoid probate.

In addition to official legal documents, maintaining a complete inventory of all accounts, insurance policies, digital access directions, and critical next steps in the event of death or incapacitation is also vital. While some estate plans include this operational overview, it is frequently left out of the standard legal package.

Utilizing structured resources, such as a "next-of-kin" box, can seamlessly guide you through organizing this information. This exercise is highly recommended for everyone, but it is absolutely critical for married couples where one spouse handles the vast majority of the day-to-day financial matters.

If it has been more than a few years since you reviewed these documents, or if there has been a significant life change such as marriage, divorce, death, birth, or a move to a different state, schedule a review.

Final Thoughts

The decisions you make starting at 50, from catch-up contributions through the retirement transition and well into retirement itself, do not exist in isolation. They interact. The account mix you build today shapes the tax flexibility you have after you stop working. The health insurance bridge planning you do before leaving your employer determines what income you can generate in those early years without losing credits worth thousands. The long-term care conversation you have at 58 is categorically different from the one you have at 72 when health and options are narrower. These are not independent checkboxes. They are a connected system.

The connecting thread through all of it is this: intentional decisions made at the right time create options. Options are what retirement flexibility is actually built from. You do not need to get everything perfect. You need to be paying attention, asking the right questions, and making real choices rather than letting inertia make them for you.

When you are ready to dig into retirement itself, including Social Security and pension claiming strategy, the Roth conversion window, withdrawal sequencing, Medicare, and legacy planning, our companion retiree guide covers that territory in depth.

A Note on Working with an Advisor

We want to be straightforward with you: everything in this guide can be researched and implemented on your own. The information is out there and none of these strategies are secrets. Plenty of people manage their retirement finances well without a planner, and we would rather tell you that honestly than pretend otherwise.

Where a planner tends to add real value is not in knowing things you could not look up. It is in the coordination layer: making sure your tax decisions, savings strategy, investment allocation, account mix, healthcare planning, and estate documents are all working together rather than pulling in different directions. And it is in the moments when something changes and you need a clear head to think it through with you, not someone who benefits from you making a move.

There is also the question of time and complexity. This material is genuinely complex, deeply interconnected, and plays out over a timeline that spans decades. Researching and executing it well is not impossible, but it is a real commitment, and the cost of gaps or missed timing is often invisible until it shows up years later. There is one more thing worth saying: if you ever lose a spouse, having an advisor you already know and trust is itself a form of planning. That relationship, built over years, can be one of the most valuable things you have in a moment when financial decisions and grief arrive at the same time.

Questions We Get Asked

The following are among the most common questions we hear from people in the pre-retirement window.

When can I retire?

The honest answer is: when your projected income from all sources (Social Security, pension, portfolio withdrawals, and any other income) reliably covers your projected expenses with enough buffer for healthcare, market variability, and longevity. The only way to know is to model it with real numbers and real assumptions. Rules of thumb like the 4% rule or income replacement rates are useful starting points but are no substitute for a projection built around your actual situation. If you have not modeled it yet, that is the single most valuable thing you can do right now.

What should I be doing now to prepare?

The most valuable thing you can do right now is model your retirement picture with real numbers. Understand what your income sources will look like, what your spending needs are, and what the gap between them is. From there, the decisions that matter most fall into place: are you building the right account mix for tax flexibility later, have you explored whether catch-up contributions make sense, do you understand the health insurance bridge if you plan to retire before 65, and are your estate documents current. This guide covers all of it, but none of it matters without the foundational modeling that tells you where you actually stand.

What is the backdoor Roth IRA and who should consider it?

The backdoor Roth is a strategy for high earners who exceed the income limits for direct Roth IRA contributions. It involves making a non-deductible contribution to a traditional IRA and then converting that amount to a Roth IRA. The key complication is the pro-rata rule, which applies if you have existing pre-tax balances in any traditional, SIMPLE, or SEP IRA. A reverse rollover of those balances into a 401(k) can clear the way for a clean backdoor Roth conversion. The IRS uses your December 31 IRA balance for this calculation, so timing the rollover before year-end matters. If you are a high earner who has been told you cannot contribute to a Roth IRA, this strategy is worth a closer look.

What is the mega backdoor Roth and how is it different?

The mega backdoor Roth is a separate strategy that works through your 401(k) plan rather than an IRA. If your plan allows after-tax contributions beyond the standard employee pre-tax and Roth limits, and also allows in-plan Roth conversions or in-service withdrawals, you can contribute those after-tax dollars and then convert them to Roth. The limits are much larger than the backdoor Roth IRA, potentially tens of thousands of dollars per year depending on your employer contributions and plan limits. Not all plans allow it, so the first step is asking your plan administrator specifically whether both features exist.

How do I cover healthcare if I retire before 65?

Your main options are COBRA, which extends employer coverage for up to 18 months with you covering the full cost of the insurance, the ACA Marketplace, a spouse's employer plan if available, and health sharing plans which come with significant coverage caveats. Under current law, the ACA Premium Tax Credit has a hard income cliff at approximately 400% of the Federal Poverty Level, which is $84,600 for a married couple filing jointly in 2026. Exceed that and all credits disappear. A household drawing primarily from taxable and Roth accounts can stay under that threshold and capture meaningful credits even with a substantial portfolio. The income decisions you make in those years interact directly with your credit eligibility.

What is NUA and when does it matter?

Net Unrealized Appreciation applies when you hold significantly appreciated employer stock inside a 401(k). Rather than rolling everything to an IRA and paying ordinary income tax on all future distributions, you can take a qualifying lump-sum distribution and receive the stock in-kind in a brokerage account. The cost basis is taxed as ordinary income at distribution, and the appreciation above that basis is taxed at long-term capital gains rates when you sell. The planning for NUA starts years before retirement since the appreciation that makes it powerful builds over time. If you hold appreciated employer stock in your plan, understand this option before you retire and the window closes.

Do states have any special tax provisions for retirement?

Yes, and this is one of the most overlooked areas of retirement planning. Nebraska, for example, offers a one-time lifetime election that allows residents to exclude capital gains from the sale of appreciated employer stock from state taxable income entirely. Iowa exempts most retirement income from state tax altogether. Nebraska, California, and others exclude Social Security income. These kinds of provisions can be worth a meaningful amount and are rarely discussed in national planning guides. In the meantime, this is worth a conversation with a CPA who knows your state's specific rules.

This guide is provided for informational and educational purposes only and does not constitute financial, tax, or legal advice. Every individual's situation is unique. Please consult your financial advisor, CPA, and/or estate attorney before implementing any strategy discussed here.

All examples given are hypothetical in nature and are provided for illustrative purposes only, do not represent the actual results of any specific client, and are not guarantees of future investment performance or tax outcomes. Actual plan rules, employer matching structures, and individual tax profiles will vary.

Logan Sanders, CFP®
Previous

The Retiree Financial Planning Guide
Next

Retirement Modeling: Spending, Income and Taxes Working Together