The U.S. doesn’t exactly have an official retirement age. Sure, there are age-related requirements you need to meet to be eligible for certain programs, like Social Security and Medicare. And you generally can’t make penalty-free withdrawals from an IRA or 401(k) before turning 59 and 1/2.
But otherwise, you get to decide when you want to retire. Let’s say, for example, that you’re in your early 60s and you’re planning to retire within the next year. You earn $200,000 per year and you’ve built a substantial nest egg. But with your retirement now just one year away, you’re left asking yourself: am I really ready to retire?
A 2024 MassMutual study found that 63 is the optimal age for retirement, according to both retirees and pre-retirees. But whether you’re younger or older than that, if you have one more year until your retirement kicks in, now’s the time to get serious.
You may be eager to retire for a variety of reasons, whether it’s burnout at work or the desire to spend more time with family. But before you make your decision official, make sure you’re ready both financially and emotionally.
First, look at your savings. A 2024 Northwestern Mutual survey found that Americans think it’ll take $1.46 million to retire comfortably.
That doesn’t mean you’ll need a $1.46 million nest egg to pull off retirement. You may have other income, like a generous Social Security benefit, that allows you to get away with saving less. But it’s important to see what shape your savings are in, and also, how much annual income your savings will give you.
Remember, $1.46 million might look like a lot of money. But if you apply a 4% annual withdrawal rate to that sum, that gives you $58,400 in annual income, not including adjustments for inflation. Whether that will suffice for your retirement depends on what you want your senior years to look like.
It’s also important to estimate your retirement expenses — and make sure you’re accounting for unknowns, like home repairs or higher-than-expected medical bills. It may help you to know that Fidelity puts the cost of healthcare spending in retirement at $165,000 for a 65-year-old retiring today. But if you have known health issues, you may want to brace for larger bills.
Additionally, make sure you have a plan for how you’ll spend your time once you retire. Will you work a few hours a week to stay busy? Or maybe volunteer? Do some traveling? Make sure you have a concrete vision so you don’t end up unhappy in retirement.
MassMutual found that people who say they’re much happier in retirement are likely to be filling their free time with multiple activities, including spending time with loved ones, exercise, hobbies and travel.
Also, make sure your plans include some social interaction. A 2024 Transamerica survey found that only 53% of retirees have an active social life, while 17% of retirees said they feel isolated and lonely. Furthermore, another report from MassMutual found that 47% of people who aren’t happy in retirement feel that ending their careers has made them lonely.
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If you’re retiring in a year, you may be excited to kick off that countdown, but it’s also important to make the most of your final months of having a job. Doing so could make you feel a whole lot better about your planned retirement date.
Here are a few things you can do to strengthen your finances ahead of retirement.
First, if possible, work on boosting your savings as much as you can. Since you’re between the ages of 60 and 63, you should know that starting this year, you can make a “higher catch-up contribution” in your 401(k) plan worth $11,250, as opposed to the $7,500 catch-up contribution that’s available to all workers 50 and older.
It’s also a good time to think about when you’ll claim Social Security. If you were born in 1960 or later, your full retirement age (which is when you can collect your benefits without a reduction) is 67. Since you’re in your early 60s, you’ll have to wait a few years before you can retire and collect your full Social Security benefit.
But you’re allowed to sign up for Social Security once you turn 62. If you plan on filing for benefits before full retirement age, make sure you understand the reduction that you’ll inevitably see in your benefit checks.
You should also be aware that delaying Social Security beyond full retirement age boosts your monthly benefits by 8% per year, until you turn 70. That could be a smart strategy if you expect a longer life expectancy.
Another move to make when you’re a year out from retirement is checking up on your investment portfolio. It’s a good time to make sure you’re scaling back on riskier assets, like stocks, and replacing them with assets whose value doesn’t tend to swing as wildly, such as bonds.
It’s also smart to have cash savings on hand when you’re on the cusp of retirement. Aim for one to two years’ worth of expenses in cash, so you’re able to leave your investment portfolio alone in the event of a market downturn. A high-yield savings account is a great option for cash savings — not only will you earn money in interest, but your cash remains liquid and easily accessible.
Also, think about one-off expenses that could arise once you retire, like a major home repair or having to replace an aging car. You may want to pile onto your cash savings to account for those potential expenses specifically.
It’s also a good idea to reduce your debt as much as possible ahead of retirement, as not having to pay debts allows you to stretch your retirement income.
But don’t assume you have to pay off every debt. For example, it’s a good idea to rid yourself of expensive credit card balances, but if you’re paying 3% or so on your mortgage and you still have a few years left, you may want to carry that loan into retirement.
Based on what high-yield savings accounts are paying today, it’s possible to earn more money in interest than what you’re paying on your mortgage if your rate is very low, which may be the case if you signed your loan or refinanced in 2020 or 2021.
Finally, make sure you’ve done careful tax planning. If most of your savings are in a traditional IRA or 401(k), you may want to talk to a financial advisor or tax professional about doing a Roth conversion ahead of retirement.
This could allow you to enjoy more tax diversification once you’re no longer working, not to mention take some of the pressure off by leaving yourself with a portion of savings the IRS won’t tax you on when you make withdrawals.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
