1 Year Out: The Final Countdown

With just 12 months to go, your retirement checklist becomes much more concrete and action-oriented. This is the year for finalizing decisions, completing paperwork, and building a cash buffer to ensure a smooth launch into your new life.

Coordinate with Your Employer

Now is the time to have a formal conversation with your human resources department. Discuss your intended retirement date. Ask about the process for starting your pension, if you have one. Inquire about the payout of any unused vacation or sick time. Most importantly, understand your options for your 401(k). You can typically leave it with your former employer, roll it over to an IRA, or in some cases, roll it into a new employer’s plan if you plan to work part-time.

You also need a clear plan for health insurance. If you or your spouse are not yet 65, you may need to secure coverage through the Health Insurance Marketplace or use COBRA, which allows you to temporarily continue your employer’s health coverage, though you will have to pay the full premium yourself.

Finalize Your Social Security Decision

While you may have modeled different scenarios before, now is the time to make a final decision on when you will claim your Social Security benefits. The decision impacts your monthly income for the rest of your life. Delaying your claim from age 62 to your full retirement age, or even to age 70, results in a significantly higher monthly benefit. You should also coordinate this decision with your spouse to maximize your combined benefits and survivor benefits. The official Social Security Administration website has tools to help you compare different claiming scenarios.

Build Your Cash Cushion

This is one of the most important steps in our pre-retirement planning guide. Aim to have one to two years’ worth of your essential living expenses set aside in a safe, easily accessible account, like a high-yield savings account. This cash buffer is your defense against that sequence of returns risk we talked about earlier. If the stock market has a bad year right after you retire, you can live off your cash cushion instead of being forced to sell your investments at a loss. This gives your portfolio time to recover.

Set Up Your Retirement “Paycheck”

Before you retire, decide on the mechanics of how you will get paid. A simple method is to set up automatic monthly transfers from your main investment account or cash buffer into your regular checking account. This mimics the feeling of a regular paycheck and can make budgeting much easier. Automating this process removes the stress of having to decide when and how much to sell from your investments each month.