Steps every executive should take before retirement

Creating a plan — then road-testing it as you get close to the time — can lead to a more secure, satisfying future when you choose to leave work.

According to conventional wisdom, if you want to set yourself up for the retirement you want, start saving as soon as possible. It’s excellent advice, but it doesn’t tell the whole story. It’s just as important to begin focusing on how you’re going to deploy those savings in a plan — one that’s based on a clear vision of how you want to spend those years. That means understanding the assets you have and how they’re working toward your wishes, as well as reevaluating your plan on an ongoing basis, to account for changes in your preferences and life circumstances.

Then, between one and three years before your planned retirement date, when the goal is clearly in sight, consult with your financial advisor and legal and/or tax advisor to test your plan in a more granular way. You’ll want to confirm that you are projected to have enough to live where you choose (including the tax implications as well as the cost of living), travel as extensively as you want, see to your family’s ongoing financial health, build a lasting philanthropic legacy — anything you define as part of a fulfilling retirement. Taking these steps in advance can give you the opportunity to make any necessary changes.

“The decisions you make about your retirement benefits and cash flow needs before you stop working can have significant financial implications for the rest of your life,” notes Amy Permenter, Head of Corporate Executive Planning, Planning Center of Excellence, Bank of America Private Bank.

“The decisions you make about your retirement benefits and cash-flow needs before you stop working can have significant financial implications for the rest of your life.”
— Amy Permenter, Head of Corporate Executive Planning, Planning Center of Excellence, Bank of America Private Bank

If you’re an executive, the complexity of your planning is increased, and you’ll need to address the major questions in a more detailed way: How can you make the most in retirement out of the additional benefits you may have? What does your deferred compensation plan look like, and is it worthwhile to change any distribution elections you may have made? How might you diversify your portfolio’s considerable value across pre-tax and after-tax investments?

It’s a plan that should have built-in flexibility. As Permenter adds, “While we all want the rosy scenario of living a long, healthy life, spending time with friends and family, and being active members of our communities, retirement may not look the way we envision. You need the ability to adjust if realities change.”

As you start to put your strategy together, here are five areas to focus on:

While you may have been planning and saving for retirement for decades, it’s important to run the numbers with your advisor ahead of time, to make sure you’re working with an estimate of how much you’re likely to spend once you retire. It should be as close to accurate as you can possibly make it. “Most people don’t have a realistic view of their cash flow needs in retirement and set spending goals that are too narrow,” says Permenter. “Living expenses don’t necessarily go down. That’s because people fill their free time with new adventures, like travel and new hobbies or activities.”

Events in later life can also radically change the retirement planning you’ve done so far. “A medical emergency or divorce can force you to recalibrate your plan in a significant way,” says Michael Shearer, a financial advisor with Merrill Lynch. He adds that understanding your likely spending needs and developing a financial road map before leaving work “gives you the opportunity to evaluate other scenarios if there’s a shortfall in your assets.” Analyzing your alternatives could help you decide whether to work longer, save more now or adjust your spending goals in retirement.

Your financial advisor can help you calculate your retirement cash flow needs and model various market and economic scenarios to test your spending goals against your assets, taking into consideration factors such as market performance, your tax liabilities, inflation and your expected health and longevity. Working with your financial advisor alongside your legal and/or tax advisor can help you make decisions that take your personal circumstances into account.

When you understand what you’re likely to need for living expenses, you’re in a better position to make smart decisions about how and when to tap your retirement assets. For example, say you have a traditional pension plan benefit. Do you want to maximize your pension benefit over your single lifetime, choose a joint and survivor benefit, or a guaranteed payout for a limited number of years, which would benefit your family if you were to die prematurely?

In lieu of a traditional pension, it has become more common for companies to offer a cash balance retirement plan. If you have such a plan, do you want to leave the assets in the plan or roll them into an IRA, which may provide a greater number of investment options, as well as the potential for greater flexibility to structure distributions, but may have higher investment fees or costs? (See “Roth 401(k)s: Tax-free income in retirement” below.)

To make the most of your deferred compensation’s potential, timing is critical. “You generally have to decide your distribution time frame when you elect to participate,” says Permenter. If, as you approach retirement, you find your original elections are no longer suitable, there may be an opportunity to make a change to defer receipt of the plan assets (by at least five years) or change the form of payment. For example, distributions made in a lump sum could result in a substantial income-tax obligation the year after you retire, as well as pushing you into a higher tax bracket, and may not align with your cash flow needs. It may be more tax-efficient to spread distributions over 10 or more years, provided you have other assets or income sources that will cover living expenses earlier in retirement.

Another potential plus to deferred compensation: Say you’re planning to retire to another state, and during your working years, you’ve lived in a state with high state income taxes, such as New York, Minnesota, New Jersey or California. If your prospective new home is in a state with lower or no state income taxes, consider structuring your distribution into 10 or more annual installments — that could result in your being taxed at the lower rate in your new state at the time the payments are received. On the other hand, a lump sum or shorter payment duration would mean you’d be taxed at the higher rate in the state where you worked up until the date of your retirement.

A diversified portfolio is important at any age, but the margin for error narrows as you near retirement. Executives often hold concentrated positions in company stock that create outsized risks in their investment portfolios. Many people think they should wait until after retirement to sell their company stock, so they avoid a capital gains burden.

But that’s not always the best approach, notes Shearer. “That strategy works great if the stock price stays the same once you retire. But if the price falls, so does your net worth. And if the price rises, you may be facing large capital gains taxes in retirement. You might instead want to consider beginning to diversify shares of company stock ahead of time, while you’re still working.”

In addition, you might want to revisit your assumptions about your tolerance for risk. While taking a more conservative investing stance might seem logical in the years leading up to retirement, says Shearer, “now that required minimum distributions can occur later, individuals with ample assets and income streams outside of their retirement accounts may want to maintain their exposure to investments with greater growth potential.”

After an exercise in cash flow modeling, executives frequently find they’ve amassed more assets than needed to support their lifestyle. “The discussion then transitions to legacy planning,” says Permenter. That conversation should include your philanthropic goals — along with the possibility of gifting to your family during your lifetime when you’re able to help guide them in being good financial stewards of the family wealth.

If you have plans for philanthropy, making gifts to charity before you retire can provide a potential tax deduction during your high-earning years. A higher gift tax exemption was made permanent by the One Big Beautiful Bill Act in 2025. Still, there are strategies you might consider to move assets out of your estate to minimize the future tax burden.

As you plan for this new phase of your life, your financial advisor – working with your legal and/or tax advisor – can be an invaluable resource, asking the questions that can help clarify your vision of retirement and walking you through some of the nuances and implications of your various options.

“You want to create as much flexibility and diversity in your retirement assets to try to optimize your tax situation and provide you with better growth potential,” says Permenter. “By working with your financial advisor and tax advisor as you’re accumulating wealth, you can make any needed adjustments to your plan. That will potentially allow you to feel more secure that the decisions you’ve made are keeping you on track to meet your goals.”

Roth 401(k)s/IRAs: Potentially tax-free income in retirement

In the years leading up to your retirement, consider contributing after-tax money to a Roth 401(k) account if your company offers one. The contribution limit for 2026 is $24,500 (applying to both pre-tax and Roth contributions to the 401(k) plan), but you can make additional catch-up contributions of up to $8,000 starting the year you turn age 50, and up to $11,250 in the years you attain age 60 to 63. Starting in 2026, if you earned more than $150,000 in the previous year in FICA wages from your current employer (and, if applicable, your employer’s affiliates), all catch-up contributions must be made on an after-tax basis in a Roth account, even if you typically only contributed pre-tax contributions to the 401(k) plan. With a Roth account, “you will be forgoing the tax deferral opportunity that comes from contributing on a pre-tax basis to a 401(k),” says Shearer. “But the tax deferral opportunity potentially isn’t as significant as it once was for high-income earners. The trade-off is that any earnings on Roth 401(k) contributions are federal income tax-free when taken in a qualified distribution.” There are no income limitations for making contributions to a Roth 401(k) and no required minimum distributions apply during the employee’s lifetime.

While high-income earners may be disqualified from contributing directly to a Roth IRA, they may roll existing IRA balances into a Roth IRA and pay income taxes on the assets converted. Similar to Roth 401(k) accounts, qualified distributions from a Roth IRA are federal income tax-free when taken in a qualified distribution2 and no required minimum distributions apply during the original account holder’s lifetime. Converting assets in an IRA to a Roth IRA has an additional potential advantage now that the age for required minimum distributions has increased to 73 and will bump to age 75 in 2033.3 The retiree can wait a bit longer to start taking minimum required distributions from IRAs — and later, when needed, to take distributions as needed from Roth IRAs. “Depending on the amount of assets accumulated for retirement, people who retire at age 63 may not have to tap a Roth IRA for several years, during which time the assets may grow and help offset the taxes they paid to convert the funds to a Roth,” says Shearer.

Income tax-free qualified distributions from a Roth 401(k) or Roth IRA can be very attractive in retirement. “Many of our clients believe that income tax rates will increase during their lifetime, so finding opportunities to potentially minimize tax consequences in retirement, when cash flow is important, can be very beneficial,” says Permenter.

5 questions for your advisor

According to Permenter, some of the basic issues you’ll want to discuss with your financial advisor, in consultation with your legal and/or tax advisor, while you’re still working include:

Cash need forecasting. What are the financial implications of where and how I plan to live in retirement? How might they typically change over time?
Deferred compensation. Should I extend the period over which I take distributions to ease the income tax consequences?
Cash balance retirement plan. Does a conversion to a Roth IRA make sense as I near retirement to provide future tax-free distributions to me and my heirs once I’ve stepped away from work?
Health insurance. What are the important considerations when looking at my company’s health insurance offerings for the years before Medicare kicks in? After Medicare starts should I investigate supplemental insurance or an Advantage Plan?
Concentrated stock. When is the best time to sell my concentrated position in company stock for diversification purposes and to provide an income stream after I stop working?

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Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.