One Year From Retirement? Prepare to Make the Break

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retirement guideBy Donna Rosato

With one year left until retirement, you're in the final stretch. It's time to prepare for the transition. Practice your budget, plan your income sources, and take action on health insurance.

What To Do

Now dial back on stocks. At this point, you'll want to start shifting away from equities, as the combined hit of withdrawals and a market downturn could compromise the longevity of your portfolio, says Baltimore financial planner Crystal Alford-Cooper.

The max you should have in stocks: 40% to 50%.

Stress-test your spending. You're likely to have a sense now of your fixed expenses for the next few years. So outline a spending plan, then measure it against your nest egg to make sure you won't blow through your savings. Start by filling in the budget worksheet on Fidelity's Retirement Income Planner.

As a rule, you can withdraw up to 4% of savings the first year, then adjust by inflation in subsequent years, and have a good shot at your money lasting 30 years. Inventory your assets and see whether 4% -- along with Social Security, pensions, and part-time work -- will cover your expenses. If not, you'll need to trim costs.

Whatever budget you decide on, practice living on it now. You'll reality-check your plan, while there's room for error.

Shore up your income. After health care costs, retirees' biggest fear is running out of money, AARP found.

One solution: a lifetime immediate annuity. Basically, you pony up a chunk of money in exchange for a monthly check for life. A 65-year-old man who invested $100,000 today would get about $550 a month.

You can't access money you put in, however, so invest only enough to cover the shortfall in basic living costs left after other guaranteed income.

Also, don't go all in right away, since interest rates partly determine payouts. Invest in stages, and you'll benefit if rates rise. Shop at immediate-annuities.com.

Pick up the pension check. Lucky enough to have a traditional pension? Find out what choices you have and how they affect your benefit.

More than half of private industry workers with pensions can now opt to take their payout as a lump sum, up from 23% 15 years ago, reports the Labor Department. Don't bite. Sure, you can invest the money, but it'd be tough to generate the same income the annuity version guarantees over a long retirement.

Another decision point: With the monthly check, you'll have to choose whether to elect a survivor option that reduces your payouts but provides a 100%, 75%, or 50% benefit to your spouse should you die first.

"You don't get a second chance on this decision," says New York elder-law attorney Ann-Margaret Carrozza.

So project what would happen to your partner's income without it. Also investigate whether you'd be better off taking the full benefit and using a portion to buy life insurance.

Stockpile cash. People tend to enter retirement with most of their money tied up in investments.

Bad idea, says wealth planner Tim Golas. He suggests having enough cash to fund the first 12 months of living expenses, separate from your emergency fund. "This creates a safety valve, so you're not at the whims of the market," he says.

Start funneling money into a savings account, cutting your 401(k) contribution to just capture the company match if needed. As a backstop, move a portion of an IRA into a short-term bond fund.

Know the Medicare windows. Retiring before 65? Now's the time to select that health insurance plan.

Retiring around 65? You can sign up for Medicare -- at medicare.gov -- up to three months before your birthday month, and up to three months after. Enroll beforehand and coverage starts the first day of your birth month; after, and it'll be delayed by up to six months.

Retiring after 65? Sign up for Part A, which is free, pays for hospital care, and may cover gaps in your employer plan; for the other parts, you have eight months to join after leaving work.

Keep in mind that premiums increase 10% a year for each 12-month period you delay once your window closes. For help understanding your options, use the tools at mymedicare.gov.

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17 Comments

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energy_sageintern

Another great way to invest when about to head into retirement is to turn to solar
There is no such thing as a perfect retirement investment, but solar panels may come close. Most retirees or people nearing retirement don’t immediately think about solar energy as a way to fund their retirements. Investing in a solar panel system, especially in states with attractive rebates and other incentives is an ideal investment vehicle. It’s essentially a low-risk, high-return investment. It’s a way to eliminate a volatile, variable expense; increase property values; and possibly create an income-generating annuity. And those are just the financial benefits!
http://bit.ly/11CqJ2H

October 16 2013 at 2:36 PM Report abuse rate up rate down Reply
donjul

Typical advice not to even mention investing in real estate. Right now one of the best investments you can make but ignored by the investment advisors. I suppose they don't get much of a "cut" from that.

November 13 2012 at 6:13 PM Report abuse rate up rate down Reply
lekpooh

and the band played on .

November 13 2012 at 12:18 PM Report abuse +1 rate up rate down Reply
Jan Tiffany

Five years from retirement prepare to make the break. Not one year. Begin paying off or paying down credit cards. Keep one or two for emergencies, but cut the others up. Double up on property payments if you haven't already. Set aside a sum in an interest earnings account every month for yourself no matter how small it is and do not touch it. Invest in large ticket items only if you can pay them off in three years. Live by the three and five year timeline as a rule on all purchases or non-purchases. The five years goes quickly. Before you know it you are retiring. Don't think you have time to do things you haven't done or invest in expensive items that will take care of themselves because it doesn't happen. The things you haven't done you can do after you retire in moderation. Between the five years and the time you retire think in terms of "Minimum Need". If you don't need it then don't do it. Many of us wish we had followed this or wish someone had told us this when we were five years away from retirement. Not one year. Employers at all levels need to prepare their employees with five year retirement guidelines and help them make informed decisions about their retirement. I only wish someone had done this for me. Retirement is a massive shock to your system when you find yourself in an early retirement and not prepared. Anything can happen between the five years and the time you retire that you have no control over. Be prepared.

November 13 2012 at 10:07 AM Report abuse +2 rate up rate down Reply
1 reply to Jan Tiffany's comment
wfreeberg

Great advice, I used a seven year plan that included moving to a new location, one that we want to spend the remaining years at. Moving before retirement, seven years, provided us the time to settle in,.

November 15 2012 at 9:07 AM Report abuse rate up rate down Reply
Condley

I retired ten years ago. The government was taking about 45% of my earnings in taxes of all types. So I bailed out. No more ******* off of me. It was the best decision I ever made. Screw our government and our welfare handout nation!

November 13 2012 at 10:01 AM Report abuse +3 rate up rate down Reply
Andrea

if medicare part A is free, why is more than $100 deducted from my social security check each month? and in addition, i pay almost $200 per month for a supplement.

November 13 2012 at 1:19 AM Report abuse rate up rate down Reply
2 replies to Andrea's comment
gblank1603

Medicare is not free---you paid for it over the years

November 13 2012 at 12:20 PM Report abuse +3 rate up rate down Reply
twofourfive

because you have to pay for Plan B which covers doctors, that's what you paying for.

November 13 2012 at 6:17 PM Report abuse rate up rate down Reply
barryaclarke

You know what I find absolutely amazing? After retiring 10 years ago. I now wonder when I ever found time to work a job that required me to put in a 40 hour work week...................

November 13 2012 at 12:33 AM Report abuse rate up rate down Reply
clyogi

You have got to be kidding. Having cash is useless in the current economic environment. Interest rates are so low that savings will not generate any income. And there is no reason to think savings rates will go up during the next four years. If you are close to retirement and have life insurance, think about ways you can exercise that option for the benefit of your heirs.

November 12 2012 at 11:41 PM Report abuse -1 rate up rate down Reply
1 reply to clyogi's comment
twofourfive

I don't live my life for my heirs!

November 13 2012 at 6:19 PM Report abuse rate up rate down Reply
Michael

What does retirement really mean?

November 12 2012 at 8:58 PM Report abuse rate up rate down Reply
1 reply to Michael's comment
Gg

some call it freedom.

November 15 2012 at 2:00 PM Report abuse rate up rate down Reply
ectullis

Who can afford to retire?

November 12 2012 at 2:29 PM Report abuse +4 rate up rate down Reply