A realization struck me on my birthday last year: I was one year away from the traditional retirement age of 65. I didn’t feel like I was almost old enough to retire, and with two young daughters I don’t think I’ll be retiring anytime soon—but it got me thinking about being prepared to retire. Here are nine things I wish someone would have suggested I do a year before reaching retirement age.
1. Research Part-Time Work
Although someone at the one-year stage is preparing to exit the full-time workforce, they still may want to hold down a part-time job during retirement to supplement their income and stay mentally and physically engaged with their community.
Working part-time could also provide a means of waiting to claim Social Security retirement benefits, which may offer a nice boost toward reaching an income goal.
“For every year past their full retirement age [that people] wait to collect Social Security, they get an 8% boost in their benefit amount, up to age 70,” U.S. News & World Report notes. “For part-time workers, getting the maximum amount at age 70 may put them closest to covering 80% of their pre-retirement expenses.”
2. Organize Retirement Accounts
The average baby boomer holds 12 jobs from age 18 to 54, according to a U.S. Bureau of Labor Statistics study. Each one of those 12 jobs may result in a separate retirement account. For example, I have had seven different employers and been self-employed many times, and so have had multiple retirement accounts.
Are your retirement accounts spread across several financial services providers? If so, it might be wise to consolidate the accounts at one financial services provider to better monitor retirement savings. It may also be wise to consider rolling over at least some of a 401(k) into an IRA before retirement to enable more asset options for a portfolio. My life has been made much easier by consolidating many of my retirement plans and reducing the number of financial services providers I have to work with.
3. Examine Portfolio Risks
One way to help shield a retirement portfolio from volatility is to ensure that it is well-diversified. Diversification helps minimize portfolio risk and increase exposure to well-performing assets, especially in times of uncertainty. A 2019 survey by CNBC and Morning Consult found that about 42% of Americans do not actively review their portfolios to make sure their holdings are diversified.
4. Consider When to Start Receiving Social Security Benefits
As noted above, a delay in receiving your Social Security benefits may mean more money in the long run. AARP stresses that the monthly benefits you receive will be 76% higher if you put off getting them until age 70 rather than age 62 (the earliest possible age).
5. Create a Retirement Budget
Establishing a preliminary retirement budget can help align income and expenses. For someone who already has a retirement budget, the one-year mark might be a good time to review it.
Once your budget has been set up, try to live on that budget for a while (before retirement) to see whether it makes sense.
According to SmartAsset, “The rule of thumb is that you can expect your expenses to be 70 to 80% of what they were before you retired.”
These interactive worksheets from Wells Fargo and Vanguard may help you estimate your monthly retirement expenses.
6. Research the Latest in Medicare
When someone retires, they often lose their employer-sponsored health insurance. That’s when they turn to Medicare, the federal health insurance program available to retirees at age 65. Medicare can be an essential but complicated part of retirement. I should know—I was a senior executive at the Federal Centers for Medicare and Medicaid Services, the government agency responsible for the Medicare program.
“Many people assume Medicare will cover all [their] health care cost[s] in retirement, but it doesn’t,” says Steve Feinschreiber, senior vice president of the Financial Solutions Group at Fidelity Investments. “We estimate that about 15% of the average retiree’s annual expenses will be used for healthcare-related expenses, including Medicare premiums and out-of-pocket expenses. So you should carefully weigh all options.”
It’s vital to absorb knowledge about Medicare in the year before retirement. Learn more about Medicare, how to sign up for it, and how to use it at Medicare.gov. You may also wish to consider purchasing a Medicare supplemental insurance plan. While not right for everyone, these plans may be a good way to cover some of the costs that Medicare doesn't pay for.
7. Organize Your Legal Affairs
In the year before retirement, review critical legal documents. Does your will need to be updated? What about a durable power of attorney or advance directive? If none of those documents have been created, then the year prior to retirement is a crucial time to write them or hire an attorney to draft them for you.
8. Plan Your Time
Determining how you will spend your time in retirement can help you determine how your retirement funds will be spent. For instance, someone who wants to travel the world may utilize a different budget than someone who plans to stay at home and pick up a part-time job.
9. Connect With Current Retirees
What better way to learn the ins and outs of retirement than to talk with current retirees?
“No matter how many spreadsheets we generate showing someone that they’ll be fine financially, it’s always good to hear how retirement feels from someone who’s been there,” says Eclectic Associates, a financial planning firm.
I am blessed to have many friends, and many of them have retired. Some of the best advice I’ve gotten about retirement has come from them. And as an added bonus, seeking advice gives me an excuse to reconnect with some of those with whom I’ve lost touch.
And there you have it—these are the things I have learned just one year out from being eligible to retire, which I wish someone would have told me about. Perhaps you’ll share them with your own friends and family.
Evaluating and adjusting portfolio risks is one of the most important things you can do in the year before retirement. Call U.S. Money Reserve to speak with a knowledgeable IRA Account Executive who can help you understand how precious metals may help lower portfolio risk in retirement.