Retirement Planning: 7 Money Moves You Should Absolutely Make the Year Before You Retire

A couple sits on a couch and goes over financial statements.
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The year before you retire is likely to go by faster than you imagine. Before that date actually comes, it’s a good idea to have your financial life in order.

More: 3 Ways To Recession-Proof Your Retirement

After you stop working, you will lose some of your financial flexibility as you will no longer have a steady income, so the time to prepare is while you still can. Here are the eight money moves you should absolutely make the year before you retire so that you can spend more time enjoying your golden years and less time worrying about your finances.

Plan Your Social Security Strategy

Deciding when you’re going to file for Social Security benefits could be one of the most important financial decisions of your life. For some retirees, taking benefits starting at age 62 makes the most sense, as you’ll end up getting the most number of payments and you’ll get them the earliest.

However, waiting until full retirement age, or perhaps as late as age 70, could permanently boost your monthly payout by about 77%, according to the SSA. But whether or not you can really afford to wait is a personal decision that you may want to discuss with a financial advisor, considering its lasting significance.

Ensure You Are out of Credit Card Debt

While having credit card debt is never a good thing, at least when you’re working full-time you have income you can use to pay it off. After you retire, however, you’re likely to be on a fixed income and may not ever have enough room in your budget to pay down your debt. In the meantime, interest rates of 20% or more will rapidly increase your debt to the point that it might overwhelm your cash flow.

Are You Retirement Ready?

Therefor, you should do everything you can in your last year before retirement to pay off your credit card debt once and for all.

Beef Up Your Emergency Fund

Having a fixed income in retirement also makes it harder to cover unexpected emergencies like car repairs and home maintenance issues. For this reason, starting retirement with a sizable emergency fund is always a good strategy.

Most experts suggest having at least three to six months’ worth of income in your emergency fund, but as you head into retirement, you might want to bump that up to one year or more if possible. This is because you will no longer have a steady and/or increasing income to replenish that fund after you retire.

Review Your Asset Allocation

Although you don’t want your asset allocation to be too aggressive as you head into retirement, you also don’t want it to be too conservative. While most advisors recommend that retirees dial down their risk a bit, they also make clear that retirement can last more than 30 years.

Over that long of a time frame, you actually do have time to recover from occasional market setbacks, and you will need some level of growth to help your investments outpace the effects of inflation. This is a good time to sit down and balance your need for capital preservation with your need for growth.

Draft a Retirement Budget

Although having a budget while you are still working is important, it’s perhaps even more so when you retire. Without as much financial flexibility, it becomes critical after you retire to track every dollar, both incoming and outgoing.

Are You Retirement Ready?

If you find yourself outspending your budget in retirement, you won’t be able to easily increase your income, so you’ll have to quickly trim your expenses in some other category. Planning your retirement budget during the year before you retire should give you time to draft a realistic allocation for your income and expenses.

Understand Medicare and Your Health Insurance Situation

Medicare Part A, hospital insurance, is free of charge for most Americans once they reach age 65. However, Medicare Part A doesn’t equate to “free medical insurance that covers all of your bills.” To get more comprehensive coverage, you’ll have to pay at least $164.90 per month (based on your income) for Medicare Part B, which is medical insurance.

But even having both Part A and Part B of Medicare won’t cover all of your medical costs in retirement. You may have to look into Medicare Part C, Part D, and/or private insurance to meet your medical needs.

Set Up Your Post-Work Life

When looking toward your post-work life, an important step is figuring out how you will fill your time. Not only can retirement activities keep you mentally sharp, they can also boost your finances.

You may want to run your own small business, for example, or pick up some part-time work either online or at a local store. If you’re all set financially, many retirees derive satisfaction from volunteering. Whatever your preference, it’s good to start thinking about how your post-work life will look before you actually take that step.

Are You Retirement Ready?

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