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When Retirement is A Year Away

When Retirement is A Year Away

At long last you can see retirement on the horizon. With much anticipation you begin the countdown, there's just one year to go before you call it quits. As exciting as it seems, there is also much work to be done.

Here's a look at what should top your to-do list when retirement is 12 months away.

First stop, HR

“Now is the time to line up all your ducks in order,” says Jonathan Gassman, CPA with Gassman & Gassman. “It's time to run through the numbers one more time to make sure that it's the right time to pull the trigger.”

Meet with your human resources department to get the latest estimate of your retirement benefits. Ask them what all your options and choices are, and what you will need to provide to them as far as paperwork is concerned, says Gassman. “Understand what your choices are in terms of your company's pension plan. Can you take the money as a lump sum, or must it be paid as an annuity? You want to understand the survivor benefits and costs associated with the plan,” he adds.

If you participate in a company savings plan, thrift investment plan, or 401k, you want to understand the various withdrawal options and the tax ramifications of each method or approach. Be mindful too, if you are divorced, you need to take those implications into consideration. “Does your ex-spouse have any rights to a portion of your benefits? If so, what are they? You may need to provide a copy of the divorce decree to the company benefits department,” says Gassman. Determine what the federal and state tax ramifications are to the various payments you may receive from your company's benefits programs, such as its 401k.

If you have company health benefits, find out what your coverage may or may not be as a retiree. Are you eligible to continue coverage into retirement, and if so, at what cost? Check to see if you have any unused Flexible Spending Account monies. These terminate the day you retire so spend down the funds.

Think ahead

If you have not contacted the Social Security Administration, now is the time to run projections as to when to apply and collect, says Gassman.

You also want to think ahead about Medicare. “It's an amazing entitlement program, but it's complexity is mind-boggling. Don't wait until you need it to figure it out, especially if you might want supplemental coverage,” says Dave Edwards, president of Heron Financial Group.

Review, review, review

Review your wills. With all the changes in the estate laws, there could be drastically negative implications for a surviving spouse if wills are not current, says Edwards. Also look over anything where you have named a beneficiary, such as your life insurance policy or your 401k account. You want to be sure that the designations reflect your current wishes.

Not only should you be reviewing documents, but your asset allocation. Meet with your financial advisor. Where does your portfolio stand? You don't want to go ultra conservative just because you're retiring, as you could spend another 20 years in retirement, but make sure you are comfortable with the type of assets you own, and how volatile they may be. “Get a family index number. This is a percentage that represents the average annual return you need to earn on your investments to meet your retirement income goals. This will be your gauge in retirement so that you can maintain your lifestyle,” says Chad Olivier, a certified financial planner with the Olivier Group.

If you don't already have one, get a comprehensive financial plan done. You want an advisor to look at your insurance policies, any debt, and all investible assets. “The financial planner can do a projection of income and help you develop a plan on where to get all of your income,” says Olivier.

Assess your finances

Whether retirement is one year or 10 years away, identify your essential expenses, those that won't go away even though your paycheck does. Then estimate your guaranteed income such as Social Security and pension, says JP McDermott, a financial advisor with MassMutual. “There will be either a gap or a surplus. If there is a gap, I recommend considering annuities from investment accounts like your 401lk/IRA or stocks and mutual funds outside of retirement accounts.”

The goal, he says, is to take care of the essential expenses with guaranteed income, so no matter what the economy does, you won't lose your home or go hungry.

Take a detailed inventory of your expenses. Start anticipating your new life, including housing, vehicles, daily living, entertainment and travel. Put all this to paper and calculate how much income per year is needed as of today to pay for these living expenses. Then don't forget to add inflation into the mix, says Olivier.

Set a realistic budget. “You can draw 4% conservatively or 6% aggressively from liquid assets and never run out of money,” says Edwards. “A retiree's total retirement income will be that cash flow, plus social security, plus any pension benefits they have, plus any additional cash from from, a rental property or business, for example. One's monthly spend has to be the same or less than the total of those cash flows.”

Look at your debt. How much do you owe to whom? How much can you pay off before retirement? Come up with a plan to eliminate as much as you can over the next 12 months. The less financial baggage you have going into retirement, the better.

Build up your savings. Says Olivier, “Most of the time the day you retire will not be the day you start receiving retirement income checks. Beef up your savings, so that you can live off of your savings for at least a few months until you start receiving monthly income.”

A year may be 365 days, but the months will likely pass by faster than you think.. Don't wait until the last minute to take the steps necessary to start the next phase of your life. After all, you want to finally get to the land of little drama, especially when it comes to your finances.

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Anonymous   |     |   Comment #1
If you can not afford to retire without social security, then it might be a good idea to keep working.  I am not so sure that you can say social security is going to be guaranteed income. 

In our low interest rate environment, a 4% withdrawal rate rule is old school.  Just be sure you have calculated enough money flow that you do not runout based upon your future spending plans during retirement.  Do a simulated spreadsheet of your predicted income, taxes, and expected expenses for your life expectancy to help determine that you do not runout of money.  Be sure to remember to include the taxes that you will owe on all your tax deferred investments during any withdrawals and at the mandatory distribution requirement for tax deferred retirement plans that begin at age 70 1/2.

Be sure to plan for inflated future health insurance costs.  My health insurance premiums have increased 94% since I have been retired 5 years. 
ytytytyt   |     |   Comment #2


Dear Ms Nance-Nash,

>> Set a realistic budget. “You can draw 4% conservatively or 6%
>> aggressively from liquid assets and never run out of money,” says Edwards.

Indeed ... the math behind this is quite sound, but it is hardly "realistic" when in real-life such drawing down without any replenishment of the liquid assets will render each subsequent 4% lesser and lesser which approaches $0, without ever reaching it.

... Yes ... Sound math ... hardly realistic from the perspecive of budgeting.  ;-)

Yours Truly,
- Anonymous
Anonymous   |     |   Comment #3
If you draw a 4% a year form your savings and nor replenish it, 

you will run out of money very soon, because your pot of gold is getting smaller and smaller every year

and you will be missing 40% of your money in just 10 years. 

Your implemented solution is just a fantasy.
paoli2   |     |   Comment #4
Take it from one who has been there and still is.  You can follow all the rules and do everything right and YOU won't get to decide how much to withdraw from your savings.  LIFE will especially if you have adult children in this day and age.  All this stuff about only withdrawing a certain percentage goes down the drain when life slaps you in the face and decides you need to withdraw chunks more to help a loved one.  When it is time to cash in a CD to get the money I need, I do and don't look back.  Only the blessed ones get to live by the rules they read in those financial books or see on tv shows.  Normal people like myself live by the rules of life!  Wouldn't it be nice if life were just movie we could turn off and on at will or edit to make it more like "we" plan.
51hh   |     |   Comment #5
You folks worry too much.  How about 2% or 1% withdrawal rate?  Just try to save $10M or more for retirement.

Tough crowd!:D
Anonymous   |     |   Comment #6
To 51hh #5,

How many people, percentage wise, can save $10M or more for retirement and will 1 or 2% be enough in the uncerain future?

paoli2   |     |   Comment #7
51:  Are you referring to saving 10 thousand or 10 million? 10 M  usually stands for thousands with me and if that is all one has, they need to buy some warm clothes and plan on living on the streets.  :)  Just wondering.
ytytytyt   |     |   Comment #8


Dear 51hh,

Your message should be clear for those with sense-of-humor!  ;-)

There are two variables here:  (1) Amount available (2) Lifetime available.

Looks like we are considering only increasing/preserving the first.  How about decreasing/shortening the second? ... Nah ... That will be rather cruel suggestion. :-)

Yours Truly,
- Anonymous
Anonymous   |     |   Comment #9
If you have to do all those detailed calculations, you dont have enough.  You have to save lots more, just in case.
51hh   |     |   Comment #10
Yt was correct that I was a bit kidding.  My point was "have a balance between retirement planning and near-term or current enjoyment of life."  I think that we worry too much about the future when we cannot be assured to live beyond tomorrow. 

My strategy: (1) Before retirement, live a prudent life and save as much as possible without ruining my current happiness and enjoyment, (2) When retired, live the same life with prudent spending and same level (or more) of happiness.  Spend more time that I can afford after retirement on innovative but conservative ways of investing.
Anonymous   |     |   Comment #11
You can plan well for the future,but along comes the Fed and ****s up your plan.
Anonymous   |     |   Comment #12
Excellent statement #11!  Very few words, precise, and right to the point. 

The Fed came along and manipulated the interests rates and the market to bail out Wall Street and the big financial institutions that gambled and lost.  There is no one to rescue us who planned and saved for our own retirement, didn't gamble, and lost anyway due to the Fed's desire to bail out the super rich who did gamble and lost due to their own greed.
Shorebreak   |     |   Comment #13
Anonymous @ - #11, Sunday, March 10, 2013 - 6:07 PM is right on the money.

"In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy."

-Jim Rogers
http://www.businessinsider.com/jim-rogers-wiping-out-the-savings-class-2013-3?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed: clusterstock %28ClusterStock%29

paoli2   |     |   Comment #14
Goodness, we get caught by this no matter where we hide, on the Blog or Forum.  Bad news sure travels fast!  Should I stock up on bananas since money will be worthless?  Face reality.  If this happens it won't just be Savers going down.  Only Donald Trump will probably survive and maybe HE can be our new DICTATOR!   What happened to the good news around here?
retired and taxed to death
retired and taxed to death   |     |   Comment #15
And start collecting Social Security at 62. If you wait, the break even point is age 73, and many people die before that. Even if you don't die, a dollar is worth more today- you won't be traveling as much at 73, as you do at 62.
Anonymous   |     |   Comment #20
#15----I agree....start collecting Soc Sec at 62, but a correction....the breakeven age is 78 (not 73)....which is all the more reason to start collecting early.
ytytytyt   |     |   Comment #16


Dear #11,

A plan that lacks contingencies for FOMC's actions/inactions is hardly a reasonable plan!

Yours Truly,
- Anonymous
ytytytyt   |     |   Comment #17


Dear #15,

Excellent! ... So many people seem to be doing something about variable# 2.  ;-)

Yours Truly,
- Anonymous
ytyt   |     |   Comment #18


Dear Readers,

Per Jim Rogers:

>> We’re wiping them out at the expense of people who went deeply into
>> debt, people who did what most people would consider the wrong thing
>> at the expense of people who did the right thing.

Err ... Is Mr Rogers really blaming the irresponsible Americans who took debt that they could not pay off?

... Whatever happened to the good-old FOMC bashing?

... I guess it is sort of unsettling to to find out there can by any villain other than the FOMC!  ;-)

Yours Truly,
- Anonymous
51hh   |     |   Comment #19
Yt, What is variable #2 again?

Anonymous   |     |   Comment #21
At what age you brake even after starting to take Social Security at age 62 is debatable.  It all depends on how you calculate it.  Just like how the Feds arrive at the Inflation Rate.

51hh   |     |   Comment #22
I think that there is a shift for the rule of thumb for the age to collect social security; it is leaning toward 62, instead of 66 or even 70.  When one looks at inflation, possible early death, and health of the social security system, it is easy to arrive at that conclusion.