What to do in the year before retiring

Several things are easier, cheaper or only possible while still working. The year before stopping is when they should be handled.

Financial preparation

Maximise final-year contributions. The last year of employment is generally a high-earning year with the deduction worth the most.

Establish credit facilities. Mortgage refinancing, home equity lines and credit applications are substantially easier with employment income on the application.

Establishing a line of credit before retiring, even if unused, is worth doing.

Deal with debt. Entering retirement without a mortgage or consumer debt reduces required income permanently and improves flexibility.

Build the cash reserve. One to two years of spending, so that the first withdrawals do not have to come from investments during whatever markets do.

Reconsider the allocation. The years around retirement are the period of maximum sequence risk, which argues for reviewing the equity exposure rather than carrying an accumulation-phase allocation into decumulation.

Employer matters

Check vesting. Leaving shortly before a vesting date can forfeit substantial employer contributions. The retirement date may be worth adjusting by weeks.

Understand what happens to unused leave, which may be paid out and may be substantial.

Ask about retiree health benefits, if any, including eligibility conditions that may depend on age or service at departure.

Deal with stock compensation. Options frequently have short exercise windows after leaving, and missing them forfeits value.

Check pension elections and survivor options, and understand the deadlines.

Consider whether the departure date has tax consequences. Retiring in January rather than December splits a final bonus or leave payout into a lower-income year.

Insurance

Health coverage, which is the largest item for anyone retiring before sixty-five.

Research the specific plans available, confirm your physicians participate, and check your medications against formularies.

Life insurance, including whether employer coverage ends and whether any personal cover is still needed.

Disability coverage generally ends with employment, which is worth noting if retirement is being deferred.

Long-term care, if it is being considered, since underwriting becomes harder with age and health changes.

Medical

The item most often overlooked.

Deal with anything outstanding while employer coverage is still in force — dental work, elective procedures, examinations, prescription reviews.

The difference in cost sharing between an employer plan and an individual one can be substantial.

Documents

Powers of attorney, healthcare proxy, advance directive, will, and a review of every beneficiary designation.

These are frequently deferred indefinitely, and the retirement transition is a natural point to complete them.

Also worth assembling: a single document listing accounts, institutions, policies, professional contacts and where things are kept.

The plan itself

Run a proper projection, including stress tests for poor early returns, higher inflation, longer life and a care event.

Decide the withdrawal approach and write it down — which accounts, in what order, at what rate, and what triggers an adjustment.

Decide the Social Security strategy, including the interaction with the withdrawal plan and any conversion strategy.

Set the tax plan for the gap years, since that window opens immediately.

The part nobody prepares

What the days will contain.

Research on retirement wellbeing suggests outcomes depend heavily on whether structure, purpose and social contact are maintained, and that the transition is harder for people whose identity was closely tied to work.

Which argues for having something specific arranged rather than a general intention to relax — a commitment, a project, a regular activity, something with other people in it.

The financial preparation is generally thorough and the rest is generally not, and it is the rest that determines whether the first year is good.

A trial run

One exercise worth doing in the final year.

Live on the projected retirement budget for several months while still earning.

This tests whether the figure is realistic, which a spreadsheet cannot, and it surfaces categories that were underestimated.

The difference between the planned budget and actual spending in a trial period is generally informative, and there is still time to respond to it.

General information only, not financial, tax or medical advice. Consult qualified professionals about your own situation.