8 Money Moves to Make the Year Before You Retire (Most People Skip #8)

The year before retirement is a pivotal time. You're deciding what life could look like once the Teams caller sound is no longer the soundtrack of your days. But some choices loom larger than whether you'll join a book club or play pickleball on Friday afternoons, like how you'll turn your retirement savings into reliable income.

For decades, your retirement goals were simple: save, invest, and grow your money. Now, with retirement just a year away, the focus shifts to making sure your money lasts as long as you do.

Though it's tempting to take things easy in the home stretch, this is the time to get strategic. The choices you make now could shape your financial reality for decades. Here are some money moves to make before you officially retire, including one decision too many peers put off.

Build a retirement plan and test it

You may know how much you've saved for retirement, but have you tested what you'll actually spend each month? A retirement budget that looks good on paper may feel very different in practice. Keith Watson, founder of Retirement Made Simple, suggested giving your projected retirement income a test drive.

"Live on the retirement budget for three months while still working, and bank the difference," Watson said. "Two things come out of it. You find out whether the number is survivable, and you build a cash cushion at the same time."

This exercise helps you identify underestimated expenses or areas where your plan feels too restrictive while you still have time to adjust.

Decide when to claim Social Security

While there's no universal answer about timing your Social Security, understanding the trade-offs helps guide your decision. Starting benefits at age 62 typically means accepting a reduced monthly payment. Waiting beyond your full retirement age (typically 66 or 67) up to age 70 potentially increases benefits by roughly 8% per year.

Delaying benefits may sound like the obvious choice, but it isn't right for everyone.

"Delaying Social Security is implicitly a bet that one will have a long life expectancy," said Robert R. Johnson, PhD, CFA, professor of Finance at Creighton University's Heider College of Business. "If one is in poor health, or has a family history of shortened life spans, it may make sense to begin Social Security payments before full retirement age."

Plan your withdrawal strategy for tax efficiency

Another important step is deciding how you'll access your retirement savings. The order you withdraw money from different accounts affects your tax bill.

A common approach is taxable accounts first, then tax-deferred accounts like 401(k)s and IRAs, followed by Roth accounts. You'll also need to plan for required minimum distributions (RMDs), which generally begin at age 73. Some retirees use lower-income early retirement years for partial Roth conversions.

Pay attention to any company stock held in your 401(k). Employer stock that has significantly appreciated may qualify for special tax treatment through net unrealized appreciation (NUA), a tax break on company stock gains.

Pay down high-interest debt before your paycheck stops

There are certain things you don't want to carry into retirement, like meetings that could have been emails and high-interest debt.

Large monthly payments from credit cards and personal loans put pressure on your budget. While you're still earning a paycheck, prioritize paying down high-interest balances, so your retirement income stretches further.

Lock in your health coverage plan

Health care is one of the biggest expenses in retirement, especially if you retire before age 65 and need to bridge the gap until Medicare.

Options may include COBRA, purchasing coverage through the Affordable Care Act marketplace, or joining a spouse's employer-sponsored plan. Each option comes with different costs and considerations, so understand your choices before leaving the workforce.

Even after Medicare begins, you'll still need to plan for premiums, deductibles, and out-of-pocket costs.

Adjust your investment risk

Ideally, you'd retire when the market is performing well. But if markets decline early in retirement, you could face sequence-of-returns risk.

"A large downturn in the equity markets immediately preceding retirement could have devastating effects on an individual's standard of living in retirement," Johnson said. "When a person is within a few years of retirement, say five years, they should begin to reduce their risk exposure in retirement accounts."

Reducing risk doesn't mean abandoning growth. It may involve shifting toward a more balanced portfolio with a mix of stocks, bonds, and safer assets designed to provide stability while helping your money keep pace with inflation.

Confirm your employer benefits

Before you retire, make sure you understand every benefit you're entitled to receive. Unused vacation or PTO payouts, retiree health benefits, stock options, deferred compensation plans, and pension options (if applicable) could all affect your retirement finances.

The money move most people skip

Setting aside one to two years of expenses provides a buffer in early retirement, allowing you to avoid selling investments at a loss during market downturns. That flexibility helps protect your portfolio and gives you more control.

Consider keeping your reserve in an accessible, low-risk option like a high-yield savings account or money market fund.

Bottom line

Treat the year before retirement as an active planning period. Fine-tuning your investments, closing health care gaps, reducing debt, and building a reliable income plan helps you prepare yourself financially for retired life.

Consider reviewing your plan with a trusted financial advisor to make sure you haven't overlooked any important steps.

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