10 Things To Consider in the Retirement Red Zone

Football fans are already familiar with the term “red zone.” When one team gets the ball inside the opposing team’s 20-yard line, they’re in the red zone. Here, a team’s strengths and weaknesses are on full display – and strategy is everything. The entire game has built up to this moment.

In the world of retirement planning, the concept isn’t all that different.

Financial experts have nicknamed the five years before retirement and the five years after it the “retirement red zone.” Here, the far-off concept of retirement has become a reality. Rather than looking to maximize growth, you’re ready to scale down your portfolio to maintain a steady stream of income.

As you consider your own retirement plan, let’s break down some important plays to help you reach your goal and avoid fumbling the ball.

What to do in the Years Surrounding Retirement

Before fully settling into the next phase of your life, there are a handful of items to check off your “to-do” list:

Determine Your Income Needs

As a rule of thumb, retiring with a cash flow of at least 80% of the annual salary you earned while working can help ensure that you’re able to meet your family’s day-to-day needs.1 The first few years of retirement have the potential to be some of the most expensive because it can take time to adjust to your new lifestyle and living on a fixed income. Consider breaking down your current expenses and be sure to include things like hobbies, possible home improvement projects, and vacations you’d like to take. If charitable giving is a regular part of your family’s plan, be sure to factor donations into your income needs as well.

Plan for Health Care

Of all the expenses associated with retirement, health-related expenses can be quite costly and have a tendency to pop up when you least expect them. A 65-year-old couple retiring today in good health should expect to pay roughly $315,000 for healthcare over the course of their retirement, which is a lot more than most people anticipate.2 Having a sufficient amount set aside for medication, treatment, and long-term care can help prepare your family for whatever the future holds.

Build Your Cash Flow

Mapping out your various income sources ahead of time – from your retirement accounts to Social Security benefits to your income-generating investments – can help you assess where you stand in relation to your retirement goal. A financial professional can work with you to bolster your retirement cash flow and improve the tax efficiency of your income sources so that you can keep more of the money you earn.

Consider Tax Implications

Taxes can end up having a significant impact on your retirement income if they’re not properly planned for. When it comes to optimizing your retirement account contributions, ask yourself whether you anticipate being in a higher or lower income tax bracket in retirement. The answer to this question will determine how you spread your savings between tax-deferred and Roth accounts. If you have taxable investment accounts in addition to tax-advantaged ones, consider which investments should be held in each account.

If you’re planning to downsize your home or move elsewhere for retirement, up to $250,000 of the profit you realize from selling your home can be deducted from your taxes, per the IRS. For married couples filing jointly, you may deduct up to $500,000.3

Adjust Asset Allocations

Achieving the right mix of safety, predictability, tax efficiency, and income generation with your investments can go a long way toward providing your family with the money they need while not exposing you to too much volatility. You may want to work with a financial advisor to determine what asset allocation will be necessary to sustain your family as you enjoy your Golden Years.

Maintain a Withdrawal Strategy

Identifying a withdrawal strategy that works for you – then sticking to it – can be key to making your nest egg last. One commonly cited strategy is the 4% rule, where an investor withdraws 4% of their retirement savings each year and adjusts for inflation as necessary. Although this can be a useful guideline, the 4% rule is not a one-size-fits-all solution. Your own withdrawal strategy should take into account your investment allocation, tax situation, life expectancy, and the needs of your family.

Plan in Segments

It can be difficult to make a financial plan for 10 or 15 years into retirement, particularly if you haven’t even retired yet. Circumstances change. Instead, think about your financial plan in blocks of five years. What are your financial goals for the first five years of retirement? Once you’ve hit that checkpoint, start thinking about the next five years. While it’s important not to lose sight of the big picture when investing, planning in segments can help simplify the process.

Keep an Eye On Inflation

While it’s unlikely that inflation will persist at the rate we’re seeing today, some degree of inflation will always be present in the market and can impact your retirement strategy, particularly over time. Keep track of inflation and adjust both your withdrawal strategy and asset allocation as necessary to account for rising costs and declining purchasing power.

Create an Estate Plan

For many, one of the most important aspects of financial planning involves preparing your family’s estate for the next generation. Consider your beneficiaries and any inheritance you want to pass down, but also consider the legacy you want to leave. Will yours be a legacy of generosity, stewardship, and leaving the world a better place than you found it? What about establishing a legacy of generational wealth? An estate plan is a tool you can use to make your legacy what you want it to be.

Work With an Advisor

Retirement can look different for every investor – and it can look different year-to-year, too. Therefore, creating a sustainable retirement plan isn’t a one-and-done task but rather a continuous process requiring adjustments based on life situations, family circumstances, or changes in the market. A financial advisor can work with you to help ensure your time in the retirement red zone is well spent and positions you well for the future.

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

Asset Allocation does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.


1 Probasco, Jim. “How Much Do I Need to Save to Retire?” Investopedia, December 19, 2022.

2 Dhue, Stephanie, and Sharon Epperson. “Americans Can Expect to Pay a Lot More for Medical Care in Retirement.” CNBC, May 16, 2022.
https://www.cnbc.com/2022/05/16/americans-can-expect-to-pay-a-lot-more-for-medical-care-in-retirement.html .

3 “Publication 523 2022 , Selling Your Home.” Internal Revenue Service.

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