Financial Moves to Take Before Retirement

By Jane Young, CFP, EA

There are several actions you can take before retirement to help smooth the transition and provide for a more enjoyable experience. Start by defining your vision or strategic plan for retirement. Decide when and how you want to retire. Do you plan to gradually retire from your current position, work part-time in a different field, or stop working completely?

An often neglected but crucially important aspect of planning for retirement is defining the lifestyle you want to lead. This can impact both your retirement budget and your happiness. Start by deciding where and how you want to live. Will you stay in your home, move to a new city or country, downsize, or purchase a home with less maintenance?

Reflect on how you will spend your time. Identify what you will do to have fun, stay engaged, fulfilled, and stimulated. It is essential to have a sense of purpose and to keep your mind and body active during retirement. Depending on your goals, create a plan to travel, volunteer, exercise, engage in hobbies, and socialize. Begin creating networks and engaging in new activities before you retire to help smooth the transition.

Establish a retirement budget that supports your vision of retirement. This should include your non-discretionary spending plus travel and other fun activities along with a contingency for emergencies. Your budget will probably change over time as you move into the later years of retirement.

Evaluate your retirement income and assets to assess your ability to adequately support your goals. Even if you manage your own money, you may want to work with a financial planner to run some scenarios on your readiness for retirement. Utilizing retirement planning software that you do not thoroughly understand can lead to the wrong outcome.

Prior to retirement, think about your Social Security claiming strategy. The longer you wait, the higher your benefit, up to age 70. If you start taking benefits prior to your full retirement, age 67 for those born after 1960, you will not qualify for your full benefit. There are also limits on how much you can earn if you take benefits early. If you start taking Social Security after your full retirement you will qualify for delayed retirement credits of 8% annually up to age 70.

In the years prior to retirement take steps to reduce debt. Strive to eliminate credit card and personal debt and consider accelerating payments on your mortgage. Reducing debt will ease the burden on your retirement budget, decrease stress, and leave more money to pursue your hobbies.

During this time, you will benefit by maximizing contributions to your retirement plans and if eligible a Health Savings Plan. You also want to maintain a well-diversified portfolio. This includes a reasonable asset allocation in stock mutual funds for growth and safer fixed income investments for short-term needs and provide a buffer against stock market volatility.