Step 4: Minimize your tax bite
Tax planning is one of the most vitally important steps to retirement, particularly for retirees whose income will be reduced.
You can get a head start by investing in the right vehicles while you're still earning money, says Matt Rettick, founder and CEO of Covenant Reliance Producers in Nashville, Tenn., and author of "All the Rules Have Changed: What You Must Do to Succeed in the New Financial Reality."
Generally, maximizing Roth IRA and Roth 401(k) plans is an excellent way to reduce taxes over the long run. Contributions are made with after-tax dollars, but the accounts grow tax-free, so there are no federal or state income taxes due on withdrawals.
If you work for an employer who has a Roth 401(k) plan, Rettick recommends fully funding it every year. Do the same if your employer offers only a traditional 401(k), he says. Be sure not to lose the company match.
Integrating your retirement withdrawal strategies among your pretax and after-tax retirement vehicles can be tricky, especially considering that Social Security is taxable once you exceed a certain income threshold.
Bill Riccio, assistant vice president at United Planners Financial Services in Scottsdale, Ariz., advises those who expect to spend down their assets to withdraw from the Roth first, since it will not be taxed.