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Important Steps to Take in the Year Before Retirement


I found a great series of articles about retirement that I’ll be sharing one by one.  CNN Money, the collaboration of Money magazine, Fortune, and CNN gives tips on what you should be doing to prepare for retirement at certain year marks before it hits.  In “One year from retirement? Prepare to make the break,” they give recommendations for that last year of working.  First and foremost, it is important to take most of your money out of stocks.  Once you are making withdrawals, a downturn in the markets could really hurt your savings if they are all tied up in equities.  They suggest less than 50% of your assets to be in stocks by this time in your life.

Hopefully you have a budget in place off which you plan to live the rest of your life.  During your last year of work, it’s wise to test your budget and make sure that you can live comfortably with the amount of money that you have allotted for your expenses and spending.  Determine what assets you will have coming in at retirement, including Social Security, pensions, income from part-time work, as well as what savings you have.  Typically you can withdraw 4% each year of your retirement and expect your savings to last 30 years.  But this isn’t always the case and those looking for a better guarantee often select a lifetime immediate annuity.  These annuities are best suited to cover the remainder of your living expenses after taking other income into effect.

Make a choice in regards to your pension payouts at this time, if you are one of the lucky Americans to have a traditional pension.  Around half of pension plans offer lump sum payouts now, but opting for the annuity payout from your pension is probably the best way to finance a long retirement.  This will be the only time you have the option of choosing a survivor benefit of 100%, 75%, or 50% if you die before your spouse, so choose carefully.  Make sure that you have cash that is easy to access and readily available.  The article suggests having enough cash in savings to cover a full year of living expenses, and this is in addition to any emergency funds you have saved.

Pay close attention to Medicare rules and deadlines and apply in a timely manner.  If you are retiring before the age of 65, make sure that you have private health insurance lined up.  You can sign up for Medicare three months before you turn 65.  As long as you sign up ahead of your birthday, coverage will begin at the start of your birth month.  If you delay your sign up, your benefits will be delayed by six months.  Make sure you sign up for the free Medicare Part A within eight months of leaving work.  Medicare premiums go up 10% for every year you don’t sign up after your window has closed, so keep that in mind when determining your health care expenses.  These are all important decisions to be made and actions to be taken in the year before retiring.

Written by Rachel Summit

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