4 Must-Dos in the Last Year Before Retirement

You’re in the homestretch. With one year (or less!) to go before you retire, you feel eager—and perhaps nervous. Are your finances prepared for this last year before retirement? Here are four to-dos to help make sure you and your money are ready for this big transition.

1. Revisit Your Spending Plan

In the year before you retire, take time to revisit your retirement budget. You’ll want to fine-tune it with updated numbers, including your Social Security benefit amount and any pension payments (more on that below). Expenses, too, can be updated to reflect a more detailed understanding of your fixed and variable costs. 

We’ve recommended in a previous article that pre-retirees test their budget before they retire. Now is an opportune time to test it again. Live as though you have retired, and ask yourself if your spending plan feels comfortable. If it doesn’t, now is a good time to adjust it. You may need to put more into savings or pay down (or even better, pay off) high-interest debt such as credit cards. 

If you think refinancing your mortgage will help reduce a financial squeeze, look into it while you are employed. Lenders may be more apt to approve the loan while you’re still working. Note: If downsizing is part of your retirement plan, think twice about refinancing. You may not be in your house long enough to make the closing costs worth the expense.

Part of your spending plan should include determining your retirement account distributions, which leads us to the next to-do …

2. Adjust Your Investment Portfolio

Many people reduce their exposure to stocks to minimize the chances that a market downturn will wreak havoc on their retirement savings. That said, too conservative of a portfolio can leave your investments with little to no room for growth. 

Talk with a fiduciary financial advisor about having your assets allocated in light of your personal finances, risk tolerance, and retirement goals. 

While you’re adjusting your portfolio, determine how much you will withdraw from your retirement accounts. The rule of thumb is that you withdraw about 4% from your accounts, such as your 401(k) or IRA, in the first year of retirement and then an equivalent amount, adjusted for inflation, in future years.

This isn’t a hard-and-fast rule, however. You can tailor your withdrawal rate so that you meet your income needs without depleting your retirement nest egg. Also, remember that required minimum distributions (RMDs) begin at age 72. 

3. Evaluate Your Pension Options

If you’re lucky enough to have a pension, take time to understand how various pension decisions can affect your retirement income. One key issue is whether you will accept a lump-sum payment or ongoing monthly payments. 

You also want to determine survivor benefits. If you’re single and plan to stay that way, you might opt for the higher benefit amount. If you’re married, you may want to take the lower amount. Your payments will be reduced, but if your spouse outlives you, they can still count on the pension for income.

4. Shore Up Your Cash Reserves

Do you have an emergency fund? Will it sustain you for six months to a year if needed? What about any large expenditures, such as a new car? Have you set aside the money for those purchases?

The more you can shore up your cash reserves now, the more insulated you will be from life’s ups and downs. This is especially important when you’re on a fixed income. Assess where your reserves fall short now and put a concerted effort into replenishing them.

Welcome, Retirement!

If you make this countdown year an opportunity to assess and adjust your finances, you can help shed any worries about whether you’re going to be OK. Nothing in life is certain, but your advance work can help give you peace of mind that you are prepared.

If you are still uncertain, then you may want to spend time with a retirement planner. A fiduciary, fee-only financial advisor can help you determine whether you are prepared and, if not, how to get on course. Our fiduciary, fee-only financial planning firm in Greenwood Village, CO, is dedicated to helping take the worry out of retirement with personalized financial planning and investment management.

Reach out to us for a complimentary 15-minute call. We can briefly discuss your financial situation and retirement concerns, and share how we may be able to help.

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