20 Steps To Take In The Year Before Retirement
Planning for retirement is a gradual process that ideally begins years in advance of your planned departure date from the workforce. However, in the final year leading up to retirement, it becomes especially crucial to tie up any remaining loose ends and prepare practically and financially for your next life stage of retirement. Here are 20 key steps you should aim to take in the 12 months before retiring.Check out Retirementshirt.com for a collection of awesome shirts celebrating those who've given their all to their careers. It's time to kick back, relax, and enjoy the fruits of their labor! 👉 https://retirementshirt.com/collections/retirement-gift
Financial Preparation
1. Review Your Retirement Savings
Taking a thorough inventory of your retirement savings and investment accounts is an important first step. Check recent account statements for any employer-sponsored 401(k)s, IRAs, or other retirement funds you've accumulated. Make sure you're on track to meet your savings goals based on retirement calculators and expected expenses. If you're falling short, consider increased contributions in your final working year.
2. Estimate Your Retirement Expenses
Using your current spending as a baseline, carefully estimate your projected household expenses throughout retirement such as housing, food, utilities, healthcare, entertainment, transportation and other costs. Factor in any future expenses like long-term care which may not be relevant yet. Having a realistic budget will help ensure adequate savings and income.
3. Review Your Benefits Options
Make sure to contact your employer's HR or benefits department well in advance of retirement to discuss retirement benefits you've earned like pensions or retiree healthcare coverage. Ask about requirements for continued coverage and the coverage start dates to avoid gaps in critical insurance. Get on any waiting lists or sign up for Medicare several months prior to leaving work.
4. Consider When to Claim Social Security
While you can begin receiving Social Security retirement benefits as early as age 62, your monthly payment amount will be significantly higher if you wait until your full retirement age which is between 66-67 years depending on your birth year. Meet with a financial planner to determine the optimal claiming age based on your unique financial situation and life expectancy. Apply 3 months before that date.
Insurance and Estate Planning
5. Organize Important Documents
Make sure your will, life and disability insurance policies, property deeds, titles and other important documents are organized together in one safe place that is accessible to your spouse or executor. Create a detailed list of digital account passwords and where to locate important papers for your loved ones.
6. Update Your Will and Advance Directives
If retiring is bringing major life changes like moving or having different beneficiaries, ensure your will and healthcare power of attorney paperwork reflects your current wishes regarding distribution of assets and medical decision making respectively. Having these directives squared away brings peace of mind.
7. Consider Long-Term Care Insurance
Depending on your health and family history, long-term care insurance, which covers assisted living, nursing home or in-home care, may be worth investigating at this stage. Premiums are based on age, so applying closer to retirement can earn a lifetime of protection at a lower cost.
Employment Preparations
8. Notify Your Employer of Departure Plans
Following your company's policies, inform management or HR in writing of your planned retirement date, typically 3-6 months in advance. Ask about bridging any gaps in company-provided healthcare coverage as well as pension payout options. Thank coworkers individually as well.
9. Close Workplace Retirement Accounts
Determine the best option for handling your employer retirement plan balance like a 401(k), which is typically rolling the funds over into an IRA for continued tax-advantaged growth, an in-service withdrawal if eligible, or a lump-sum payout. Complete paperwork well before leaving work.
10. Apply for Pension Benefits
If you accrued a pension through work, understand the payout schedule, options for a lump-sum versus lifetime payments, and any cost of living increase adjustments. Apply according to employer instructions, which usually involves submitting paperwork 3-6 months ahead of retirement.
Finances
11. Review Your Debt Obligations
Analyzing debt like credit cards, auto loans, home equity and student loans is recommended before retiring with a fixed income. Consider paying off high-interest balances before retiring to minimize monthly obligations.
12. Trim Discretionary Expenses
Review subscriptions, gym memberships, streaming services, cable packages and similar recurring expenses you may no longer need or use as often post-retirement. Downgrading or cancelling allows savings.
13. Adjust Your Emergency Fund
Review and potentially increase your emergency savings amount to cover several months of living essentials like housing, food, healthcare given now fixed income and no paycheck replenishing funds.
14. Meet with a Financial Advisor
Schedule an in-depth meeting with an accredited advisor before retiring to review your income plan from multiple sources, long-term care options, tax strategies and ensure you are financially prepared. Advisors can provide accountability.
Lifestyle Planning
15. Plan Your Retirement Activities
Whether its hobbies to explore, travel destinations to visit friends and family or volunteer work to stay active, outline how you'll enjoy your newly acquired spare time right after retiring to look forward to.
16. Discuss Plans with Family
Retirement brings major change - communicate your goals and needs to loved ones for a smooth transition. If moving, involve your spouse or dependents in property search.
17. Schedule a Celebratory Trip
Give yourself a motivational minivacation to look forward to right after the retirement party. Whether it's a bucket list trip or visiting grandchildren, planning this getaway incentivizes completing work.
Other Details
18. Update Tax Withholdings
In your last job year, adjust your W-4 withholdings to account for not having employer income when retired. Coordinate with an accountant to avoid tax penalties.
19. Set Up Post-Retirement Systems
Research how you'll manage finances in retirement like paying bills online, transferring funds, receiving statements by mail versus electronically with a limited income. Ease the transition.
20. Consider Delaying RMDs If Possible
Understand required minimum distribution (RMD) rules for IRAs and 401(k)s after age 72 that must be withdrawn annually as income. Delaying these as allowed can prolong growth.
With preparation across financial, insurance, health, leisure and lifestyle domains in the year before retiring, you can go into your next life phase well equipped to enjoy all it has to offer. Be sure to tackle these essential action items with plenty of lead time. Your future self will thank you.