Within 3 Years of Retirement? 10 Things To Do Now

The final three years before you retire are critical for determining how you will live once you stop working. Having a solid retirement plan in place years before you make the big lifestyle change means doing several things to ensure you can be stress-free. Maximizing your last three years of work means following some steps to get your house in order right now.

Here are 10 things to do during the final three years leading up to your retirement.

An HSA is a big part of any sound retirement strategy, and for good reason. The tax advantages are immense since the contributions are tax-deductible, the earnings grow tax-free, and the withdrawals for qualified medical expenses are tax-free. Putting more money into your HSA can save you from dealing with costly medical expenses during your retirement.

Getting rid of any credit card or similar high-interest debt should be done before you finally step back from full-time work. Reducing the interest payments will save you a lot of stress later in retirement, as debts will eat away at your fixed monthly income. Focus on paying down the debt with the highest interest rates and work your way down from there.

While the interest rate on your mortgage is probably fairly low, think about paying it off entirely. Doing so will free up more of your monthly cash flow for other expenses. If that isn't possible, consider refinancing or paying off a good chunk of it to reduce the remaining principal.

When you are on a fixed income, having debts suck up part of your monthly cash flow can cause a lot of stress, so it's best to avoid it.

Upgrading those old appliances and replacing them with new ones that are covered by a warranty will save you from a lot of headaches later on. The last thing you want to deal with when you're retired is a broken refrigerator or malfunctioning oven. If you haven't replaced these big items, now is the time to do so before you go on a fixed income.

Think long and hard about your current living situation and whether or not you want to downsize. If you're an empty nester, you probably don't need a big house that needs constant attention. Selling your primary residence and moving to a smaller place will also give you more cash on hand for other things.

You will thank yourself later for building up a solid reserve of cash to cover any emergencies or market downturns. Aim to have enough money to cover two years' of living expenses. You can't expect the unexpected, so it's better to be prepared with your finances when something does come up.

Your investment strategy will change once you're retired, so now it's time to review what you have and reduce risk. As you get older, your risk tolerance decreases since you're relying on steady, fixed income every month. That means moving your investments into stable places that are less volatile.

Once you've settled your finances, it's time to update your estate plan and determine how your assets will be passed on after you're gone.

That means updating your will, power of attorney, and healthcare directives. You might also consider putting your assets into a trust. Doing so will make it easier for you and your beneficiaries.

Meet with someone who specializes in retirement finances and get them to review your accounts. From there, they can recommend a proper financial strategy once you hit retirement. Having another pair of eyes look over things will help immensely and take a lot of stress off of your shoulders.

Depending on your age when you retire, you can start taking your Social Security payments or delay them until later. Delaying the payments until your late 60s will give you a larger monthly payout, which could be beneficial as you age. Figure out when it's appropriate to start collecting your payments and factor them into your projected monthly cash flow and other investments.

Taking a proactive approach to your final three years before retirement will have a positive impact in the long run. You want to avoid wasting your retirement savings paying off debts or investing in risky assets that could cost you significant dollars.

Remember that timing is crucial for retirement and taking your Social Security benefits, which constitute the majority of cash flow for retirees. Delaying your monthly payout until age 70 can increase your monthly payment by 76% compared to claiming at age 62. As long as you have a solid plan that considers all of this, you'll be set up nicely for a relaxing retirement.