What You Should Be Thinking About Financially Right Before Retirement

Why It Matters:

  • Life is full of important events that can also have significant financial implications.
  • If you’re retiring within the next 10 years, time may be running out to create the retirement you’ve always hoped for.
  • If you’re a little behind, it’s never too late to get started.

Jeff Maciolek tkc.profilePicture Written by: Jeff Maciolek | Transamerica
Nov. 25, 2020

5 Min readClock Icon

Life is full of important events. And each one brings with it a series of financial decisions that can affect your finances for years — or even decades — to come.

For those getting ready to retire in the next 10 years or less, the countdown is real. The words “retirement” and “someday” are no longer joined at the hip, and the initial shock of receiving your first AARP mailing and your inaugural colonoscopy are well behind you. The goal line is finally in view, and the endless possibilities that retirement holds are now more vivid than your passing daydreams from the last 30-plus years.

But this is no time to put things on cruise control. To make your retirement everything you ever dreamed it could be, there are some steps you need to be thinking about taking today to reduce your anxieties about tomorrow. Here are a few items to add to your pre-retirement checklist if you haven’t already:

Meet with a financial professional

If you haven’t already, make an appointment with a trusted financial professional — and the sooner the better. Your time to correct any shortfalls before retirement is getting short. A financial professional can help you review your retirement portfolio, evaluate that you don’t have too many eggs in one basket, and calculate your retirement income. From there, you can create a financial strategy to help you decide if you can move up or need to push back your desired retirement date.

Max out retirement contributions

If you’re 50 or older, you can now make catch-up contributions to your 401(k) or 403(b) retirement plan. On top of the regular $19,500 limit in 2020, you can now add an additional $6,500 in catch-up contributions. For IRAs, you can contribute an additional $1,000 on top of the regular limit of $6,000.

Retire debt and build savings

Starting your next chapter in debt is never ideal. Paying off high-interest consumer debt should be a top priority. Credit card balances, car loans, and mortgages can hold you back from making your retirement years your best years. Also, consider building up your emergency savings. Life doesn’t stop throwing you curveballs once you hit retirement. If improving your financial position means putting off retirement for an additional year or so to make yourself debt-free, then it might be worth the sacrifice.

Consider medical costs and long-term care needs

Even if you’re in great shape now, Father Time and medical costs still have a way of catching up to you. In fact, the average 65-year-old healthy couple retiring this year is expected to need over $424,000 in retirement to cover healthcare costs such as Medicare, supplemental insurance premiums, and out-of-pocket expenses.1 If that doesn’t get your heart rate up, there’s also long-term care (LTC) to start thinking about. Someone turning 65 today has almost a 70% chance they will need some kind of long-term care during their life.2

If you think those sound like scary numbers, you have plenty of company. But with the proper planning and financial guidance, you can create a financial strategy that can help you deal with the high costs of health care and LTC without them tarnishing your golden years.

Sign up for Medicare

Speaking of healthcare, don’t forget about Medicare. You’re eligible once you turn 65, and you can sign up from three months before and until three months after the month you turn 65. Medicare Part A covers hospitalization and requires no premiums, so you might as well consider getting the process started — unless you still want to contribute to a health savings account. Then you’ll have to wait. Part B covers outpatient care, such as doctor visits, and requires a premium. If you’re still working and have health insurance coverage, you might consider holding off on Part B.

Understand your Social Security situation

You’ve been contributing to it for years, but do you really know how Social Security works and what’s the best claiming scenario for you? You’re eligible as early as age 62 (full retirement age is 66 for people born between 1943 and 1954). But if you claim early, your benefits will be reduced by roughly 25% to 30% of the amount you’d get at full retirement age. Each year you defer your Social Security payments, your monthly benefits grow by 8%, until age 70. Talk to a financial professional or use the Social Security calculator on SSA.gov to help determine the best claiming strategy for your situation.

Figure your retirement paycheck

Since it’s likely you’ll no longer be working full time in retirement, you’ll need to figure out how you’ll be paying yourself. Your “retirement paycheck” will be comprised of multiple sources, such as personal savings and investments, Social Security, company-sponsored retirement plans such as your 401(k), pensions, Roths, and perhaps other business and real estate investments. Every year you wait to tap these financial resources is one more year for them to potentially grow and help them last longer in retirement.

But how you drawdown your investments can make a big difference in how long your retirement funds last and how much you pay in taxes. The old rule of thumb was you could drawdown 4% of your portfolio annually in retirement. That may be a good starting point for some, but it may or may not work for others. Plus, the year you reach age 70½, required minimum distributions (RMDs) will force you to start withdrawing from your retirement accounts whether you’re ready or not. That’s why it’s always smart to have a financial professional to help you navigate the waters of retirement.

Estate planning

If you’re like many, you’ve been putting off any kind of estate planning because you didn’t want to think about it. But estate planning isn’t just for the wealthy. You probably have more than you think that will need to be accounted for someday. Failing to prepare can cause a good deal of frustration and headaches for your loved ones. There are a lot of things to consider in planning your estate, and that’s why it’s good to talk to a qualified lawyer or financial professional to make sure you cover all the bases.

A will is a good place to start and can help ensure your final wishes are known. Plus, it makes it easier on surviving relatives since they won’t have to guess about your intentions or fight over your assets. Also, be sure your life insurance policy (or policies) is (are) still in force and/or learn when term policies terminate so there’s money to cover your final expenses. (You do have life insurance, right?)

Map out your plans

Let the dreaming begin. Retirement presents a whole world of possibilities enabled by years of hard work and proper financial planning. Since you won’t have the daily grind of working — unless you want to — do you yearn to travel? If so, where? Would you still like to work part time to stay busy or maybe start that encore career you’ve always dreamed about? Will you sell your home and move somewhere warmer or closer to family? What about taking some classes or pursuing that hobby you never had time to explore? Or maybe finally learning to play that musical instrument gathering dust in your closet?

It’s not too late to get started

We get it. You had the best intentions to nail down this retirement stuff years ago, but somehow life got in the way. You’re not alone. The number of people who are behind on their retirement planning could fill those countless bingo parlors you’ve sworn to avoid. But these are the days to get serious about your next chapter so you can make sure it’s everything you want it to be. There’s still time to improve your situation, but seeking the assistance of a financial professional can go a long way to ensuring your retirement years are your best years.

Things to Consider:

  • If you haven’t already, meet with a financial professional as soon as possible to get your financial house in order and make sure you’re on track to retire when and how you want.
  • Retire debt and put your retirement savings into overdrive, if you can.
  • Is your target asset allocation right for you? Make sure to calculate your risk based on your age, financial needs, and goals.
  • Just because your finances aren’t where you wanted to be at this point in your life doesn’t mean you can’t get there before retirement.

Check out our helpful infographic 12 Steps to Prepare for Retirement.

1 2020 Retirement Healthcare Costs Brief,” HealthView Services, October 2020, ahead of publication

2 “How Much Care Will You Need?,” LongTermCare.gov, accessed May 2019

Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.


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