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  • Writer's pictureMelissa

So, You're Retiring In A Few Years

Updated: Dec 15, 2020

After a stressful 2020, you’re thinking more-and-more about retirement.While the bulk of your retirement prep work and heavy lifting has been completed by the time you are a couple of years from retirement, there is still a few boxes you’ll want to check off before finally saying adios to the workforce. Let’s go through them.

1. Social Security Decision

You’ll need to decide when to collect Social Security benefits. The earliest age is 62. Unless you’re retiring early and need the benefits to help cover expenses like health insurance, it’s advantageous to wait. At 62, your benefits would be reduced by 25% or more. You won’t collect 100% of your benefits until you’re 66 or 67, depending on what year you were born. When you wait to collect, keep in mind that benefits increase by 8 percent per year up until you are age 70.

2. Get Your Finances Simplified

Do you have multiple brokerage accounts, savings accounts, checking accounts, 401(k)s, IRAs, and other retirement savings accounts? Perhaps, you have lost track of an account?

First, simplifying and consolidating your various small financial accounts into a larger one will make it easier for your heirs to step into control if you had a medical emergency, needed long-term care, or passed away.

Second, you can reduce paperwork, possibly save some cash, and better keep track of your income to expenses ratio by having everything neatly confined. For example, aggregation with a single provider can offer some economies of scale like cheaper expense ratios.

Lastly, if you have lost track of an account, then you are missing a piece of your financial pie that could make a big change in how retirement unfolds. Look at: and as good places to start tracking lost and unclaimed funds.

3. Give Your Portfolio A Health Checkup

Ideally, your portfolio at this point should be moderate-risk.

A bucket system may help protect you against your biggest retiree risk: forced sells during plunges. During plunges, the bucket system allows you to have enough cash and bonds that you won’t be forced into selling stocks to pay your debts. You will divide your nest egg into three buckets:

• Bucket one - cash for living expenses not otherwise covered in the next few years.

• Bucket two - short and intermediate term bonds to cover money you will need in the first ten years of retirement.

• Bucket three - diversified stocks for money needed in the distant future.

4. Make A Plan With HR

Schedule a time to speak with your company’s human resources department about your retirement. Topics you’ll want to ask about include:

• Are unused vacation days paid upon retirement?

• Is receiving profit-sharing payouts, bonuses, 401(k) match, or any other income aspect impacted by your planned retirement date?

• If retiring before Medicare-age, what retiree health benefits are offered?

• If a 401(k) is left as-is versus rolling it over into an IRA, can distributions still be taken? How? Is there a fee?

• If a pension is available, what are the options for payout?

One note on lump-sum pensions to keep in mind is that extending your retirement may not increase your pension. Lump-sum pensions are calculated based on interest rates. The higher the interest rate, the lower the pension. Extending your retirement when interest rates are rising can actually result in your pension going down, not up.

5. Study Medicare Closely

Medicare is a difficult beast to navigate, and the sales pitches you get from supplement insurers only add to the confusion. So, you’ll want to start studying now, understanding how Medicare works, what coverage gaps exist for you, and what you need versus don’t need in supplements. Here are some highlights you’ll want to consider:

• Upon turning 65, Social Security beneficiaries are automatically enrolled in Medicare parts A (hospital care) & B (doctor and outpatient visits.) If you’re delaying your SS payment, then it’s up to you to enroll on your own.

• If delaying your SS claim and you are still covered by your employer’s health plan, then you will likely find it beneficial to go ahead and sign up for part A at age 65 since there’s usually not a premium.

• You may want to opt out of part B since it charges you a monthly premium for service.

You may also want to opt out of part D, which covers prescriptions. The caveat here is if your employer’s offered insurance is as good as what Medicare offers. If it is not as good, and you select to opt out, then you’ll face penalties when you sign up in the future.

• To ensure you are not left without coverage, plan to sign up for part B around six weeks prior to retirement. You have eight months after leaving your job to sign up for part B without penalty.

• Decide if you want Medicare Advantage. This is basically a combination of parts B & D with a supplemental medigap plan to cover the copayments, deductibles, and other traditional healthcare costs that Medicare doesn’t include. These plans provide private insurer medical and drug coverage within a network, meaning you will need to carefully research your plan options and determine if your preferred health care providers are in the offered network of a plan.

6. Should An Annuity Be On The Agenda?

Without a traditional pension, an immediate annuity might be a good option for you. A common strategy is to calculate fixed monthly expenses - car note, mortgage, insurances, utilities - and buy an annuity that gives a congruent payment. Basically, you give an insurer a lump sum of money in exchange for them paying you a monthly amount each month for either the remainder of your life or a specified amount of years. If you choose a joint-and-survivor annuity, that payment continues through your spouse’s life should he/she outlive you.

Another strategy is a deferred income annuity. Ideally, these are bought at least 10 to 15 years out from retirement since they take 10 years to mature. However, if you’re taking an early retirement or expect your expenses to be greater in the next decade, a deferred annuity may be a good option. They are much less costly than an immediate annuity, but they also have a major risk versus reward. Your heirs get nothing if you pass away before payments begin. The fix is to opt for return-of-premium benefits, but this reduces your payout quite a bit.

In closing, the finish line is just around the corner, but now isn’t the time to slack off just yet. You’ll want to make sure these important boxes are checked so that you can retire with the peace and confidence you have worked all these years to afford.


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