One More Year Until Retirement? Here’s What to Do

Assess Your Retirement Readiness

This is an important time to start reviewing your financial situation, which can help to identify potential gaps or concerns and make a plan to address them before entering retirement.

Start by calculating your current retirement savings and investments, including any 401(k)s, IRAs, health savings accounts (HSAs), Roth accounts, and brokerage accounts. You’ll be relying on these heavily to cover your needs in retirement, which is why you need to know how much is in them now and how much you’ll expect to contribute to them over the next 12 months.

You’ll likely have other sources of income in retirement as well, such as Social Security, dividends, the sale of your family home, and possibly a pension plan or other guaranteed income product. Your financial advisor can help you compile all income sources to determine where your money will come from throughout retirement.

Take stock of any outstanding debts or liabilities and determine what you’re able to realistically pay off before retiring. The fewer financial obligations you have to cover in retirement, the more freedom you’ll have to allocate your money to other things, including your long-term stability and comfort. If you identify that you won’t be able to pay down the debt before you retire, be sure to incorporate your continuing payments into your expected retirement expenses.

Build Your Retirement Budget

With an understanding of what your retirement income will look like, create a comprehensive retirement budget (or as close to comprehensive as you can get at this moment). To do this, it may be helpful to review your current spending habits and financial obligations. Look at your credit card and bank statements over the past few months to get an idea of how you’re spending and saving.

Count your non-discretionary expenses, such as:

• Mortgage
• Utilities
• Groceries
• Insurance premiums
• Debt repayments

Make a separate list of discretionary expenses, which might include:

• Streaming services or monthly subscriptions
• Entertainment and dining
• Gym or club memberships
• Travel 
• Shopping

As you build your monthly budget based on your estimated spending in retirement, you may need to adjust your non-discretionary expenses to match your anticipated income. This is something your financial advisor can help you determine when establishing a retirement income strategy.

Maximize Retirement Account Contributions

The months leading up to retirement are a potent time for solidifying a strong foundation for the future, so take the opportunity and commit to paying extra attention to your savings. If you haven’t already, consider maximizing your yearly contributions to your 401(k), IRA, HSA, and Roth accounts. Remember, contribution limits reset in the new year, meaning you could add the maximum amount in December plus the following year’s contribution limit in January. 

Individuals over 50 have the added bonus of being able to utilize catch-up contributions, which raise the contribution limit for retirement savings accounts. In 2023, for example, people under 50 could contribute up to $22,500. But with the addition of $7,500 in catch-up contributions, that limit jumped to $30,000.

As a reminder, anything you contribute to your 401(k), HSA, or traditional IRA will reduce your taxable income for the year the contributions are made. While the accounts grow tax-deferred, you must pay income tax on withdrawals. 

Roth IRAs are funded with post-tax dollars, meaning contributions won’t lower your taxable income for the year they’re made. However, withdrawals of the initial contributions are tax-free, and qualified earnings distributions within the account are tax-free as well.

Review Your Investment Portfolio

The closer you get to retiring, the closer you are to relying on your investments as income. This is why people typically shift their portfolio into more conservative territory – less stocks and more bonds, for example – in preparation for retirement. In the event of a market downturn, a more conservatively balanced portfolio will cushion much of the blow. In this sense, your portfolio is transitioning from a focus on growth to a focus on preservation and longevity.

Again, this is something you’ll want to review closely with your financial advisor, as everyone’s needs and portfolios look different.

Evaluate Social Security Strategies

Social Security benefits are a form of guaranteed income, which is especially important in retirement. However, Social Security payments will likely not cover all of your financial obligations. The average monthly check is around $1,841.27. 

While you can technically start receiving Social Security benefits at age 62, you’ll take a reduction in benefits if you start collecting those payments before your full retirement age, which is around 67. If you choose to delay benefits for any number of years until age 70, you’ll receive benefit credits, and your monthly check will be increased — around 8% higher for every year you delay your benefits. This is a significant advantage, since that increase in benefits can add up to thousands of dollars of additional income over the rest of your lifetime. 

Explore Healthcare Options

Once you turn 65, you’ll be eligible for Medicare, and you’ll have the option to sign up for different Medicare parts:

• Part A: Hospital insurance (includes skilled nursing facility care and hospice)
• Part B: Medical insurance
• Part D: Prescription drug coverage
• Medigap: Supplemental policies provided by private companies
• Part C: Medicare Advantage (bundled plans provided by private, Medicare-approved companies)

If you’re in a higher income bracket, your Medicare premiums may be subject to income-related monthly adjustment accounts (IRMAAs). These are monthly fees tacked on to your Medicare Part B and Part D premiums, and they impact around 7% of Medicare beneficiaries.

If you’re retiring before age 65, you’ll need to look for other ways to obtain health insurance in retirement. Perhaps your spouse is still working, meaning you may be able to join their healthcare plan during a special enrollment period. You can also look for plans on the federal marketplace, though these may be a more expensive option.

Prepare for Your Post-Retirement Lifestyle

Preparing for retirement involves more than getting your finances in order. Retiring is a major life transition, and you might be surprised to discover just how much this change impacts you. It may be helpful to think about where you want to live once you retire, and how you’ll spend your days. Perhaps you’d like to downsize from your family home and use profits from the house sale to fund a portion of your retirement. Some people take this opportunity to move to a dream destination they’ve always felt interested in. Whatever your ambitions, understanding your preferences and projections for your future can offer insight and direction for the decisions you’ll be making next.

Meanwhile, when you’re not working dedicated hours every week, the time can potentially just spread out in front of you with nothing to fill it. The best way to keep feelings of loneliness, isolation, or boredom at bay is to build a new routine that gets you out of the house, into the community, and which connects you with your interests.

Some people look for volunteer opportunities, pick up a satisfying part-time job, join a local club, or find a fitness group. Maintaining an active and social lifestyle in retirement will help you feel fulfilled and engaged during this new stage of your life. You’ve worked incredibly hard to live a financially liberated lifestyle – this is your time to enjoy it.

You may find that leaving the workforce for good is a surprisingly emotional experience. As you start establishing new habits and routines, build a network of people to replace those whom you may no longer talk to regularly, such as old coworkers. This is especially important if you’re choosing to relocate in retirement, or don’t live near family and close friends. 

Update Legal and Estate Documents

While preparing for retirement, don’t forget to check over your estate planning documents and strategies. Work closely with your financial advisor, tax professional, and estate attorney, as many important legal documents must be properly completed and filed for your final wishes to be executed properly.

You should review documents such as your account beneficiary designations, will, trusts, power of attorney, property titles, and burial arrangements.

Seek Professional Advice

Retirement is on the horizon, and the final steps you take toward this huge milestone are critical ones. Now’s the time to connect with a team of financial professionals to ensure you’re making informed and proactive decisions over the next 12 months. Your financial advisor will be prepared to provide expert guidance during this exciting time, and help you feel more comfortable and confident heading into the next chapter of your life.

Ready to find a trusted financial advisor who will help you plan for retirement? Reach out to our team today.