6 Things to Do If You're Nearing Retirement

If you're thinking of retiring within the next 10 years, you may feel like you're confronting quite a few "what ifs" and unknowns.

"Many retirees say transitioning from saving to living off their savings is one of the biggest challenges of retirement," says Rob Williams, CFP®, RICP® and managing director of financial planning, retirement income, and wealth management for the Schwab Center for Financial Research.

"But thinking through some of the most critical questions early on—like how much you'll have, how much you'll need, when to take Social Security, and how taxes could affect your savings—and then putting a realistic plan in place—can help take some of the pressure off."

And taking steps toward the retirement you want while you're still working can help you identify shortfalls and make adjustments before it's too late.

Here are six things you can do now to set yourself up for a smoother retirement when the big day comes. 

If you don't have a retirement plan yet, now is a good time to create one.

If you do have one, check it at least once a year to make sure it still matches your needs and goals. Here are some items that could change as you age: your retirement date, expected future expenses, savings tally, and potential income sources.

It's also a good idea to put your plan to the test from time to time. You can use a retirement calculator to see if you're saving enough. But you'll get more comprehensive, personalized results if you use a robust digital planning tool or work with a financial planner or advisor. Both can help you look at a range of scenarios and your probability of success given the variables unique to your situation (for example, if you have plans to relocate or start a small business in retirement, as well as your gift and estate plans, life expectancy, or other personal factors).

In addition to checking your retirement plan, Rob suggests checking your investment portfolio once a year to be sure it still makes sense for you. Things that may change as you near retirement include when you might start needing money, your risk tolerance, desired asset allocation, diversification of investments, and your approach to regular rebalancing. 

Whether you find yourself in catch-up mode or just want to save as much as you can before you stop working, you have options.

"First, if you have an employer-sponsored account—such as a 401(k), 403(b), 457(b), or Thrift Savings Plan—be sure to contribute at least up to the amount your employer will match, and certainly more if you can," says Rob. "In 2024, you can contribute up to $23,000. If you're at least 50 or will be by year's end, you can also make a catch-up contribution of $7,500, for a total of $30,500."

"Once you've contributed to your employer account—or if you don't have an employer account—consider contributing up to the maximum amount in a traditional IRA or Roth IRA," he adds. Remember, you can also make catch-up contributions to your IRA starting the year you turn 50.

"If you're eligible, you should consider using your Health Savings Account (HSA) to save for future health care costs," he adds. For your HSA, catch-up contributions are allowed starting the year you turn 55.

"Of course, you can also save in your regular brokerage account," Rob says. There's no limit on how much you can save in such accounts.

While you can start taking Social Security as early as age 62, doing so triggers a reduction in your retirement benefit. If you can wait, your future benefit grows. Once you hit "full retirement age," your Social Security income will increase up to 8% for every year you delay, until you reach age 70. After age 70, there's no upside to delaying.

"The decision on when to take Social Security depends heavily on your specific situation, including your other income sources, life expectancy, and your spouse's needs and circumstances," says Rob. "While there is no correct age for everyone to take it, we generally suggest waiting until you are full retirement age (or as old as 70) if you're in good health and can afford to wait, since deferring can pay off over time and provide higher income over a long retirement."
 

When you're still saving for retirement, it's important to prepare for the taxes you'll end up paying once you reach retirement. While tax laws and tax rates could change before you get there, you can still plan for these unknowns and set yourself up for a more tax-efficient outcome.

"One approach is to spread your savings across a variety of accounts with different tax treatments—say, by saving in a pre-tax 401(k), after-tax Roth IRA, tax-advantaged HSA, and a regular taxable brokerage account," Rob says. "With this kind of tax diversification, you can mix and match withdrawals from your different accounts to better control your taxable income."

Here's how to approach tax diversification depending on your current tax bracket: 

• If you're in a lower bracket (0%, 10%, or 12%), consider maxing out your Roth savings because your tax bracket in retirement is likely to be the same or higher than it is today. 
• If you're in a middle tax bracket (22% or 24%), it may be more difficult to predict your future tax bracket. Consider splitting your retirement savings between tax-deferred and Roth accounts so you can benefit from both tax treatments.
• If you're in a higher tax bracket (32%, 35%, or 37%), your tax rate in retirement is likely to be the same or lower than it is today. It may make sense to maximize your tax-deferred accounts—such as your 401(k), 403(b), 457(b), or Thrift Savings Plan. 
   

Medicare is a big piece of the retirement health care puzzle. But it won't cover everything, and there are out-of-pocket costs. 

"Be sure to include the costs of premiums and out-of-pocket expenses in your retirement budget. When Medicare kicks in at age 65, it's reasonable to plan on spending about $450−$850 a month," Rob advises. But where you live, inflation, and other personal factors play a role, so consider talking to a financial planner for a more accurate estimate.

If you're eligible, an HSA can help you save for health care costs before and after you retire. An HSA lets you set aside pre-tax dollars to pay for qualified medical expenses (including Medicare premiums and out-of-pocket costs). Money you save and invest in your account also grows tax-free, and as long as you use it for qualified medical costs, you won't owe taxes on it. At age 65, you can no longer contribute to your HSA, but you can use any money you've saved in it to pay for qualified health care costs tax-free. After age 65, you can also use the funds for non-medical expenses without a penalty—you'll just owe ordinary income tax.

If you're receiving Social Security at age 65, you'll be enrolled automatically in Medicare Parts A (hospital) and B (medical). If you're not yet receiving Social Security, you'll need to sign up on your own. Keep in mind, Medicare has special enrollment periods, and signing up late can lead to penalties or gaps in your coverage.

Costs for Medicare include a deductible and coinsurance for Part A, and premiums, deductibles, and coinsurance for Parts B and D. You can also purchase Medigap to help with out-of-pocket expenses using Medicare. Medicare Advantage is another option that covers Medicare Parts A and B, and often includes services original Medicare doesn't cover, like routine dental and vision, through a private company.

About 60% of people will also need long-term care at some point, and the costs can be high. If you're not sure how you would cover these expenses, long-term care insurance might be worth considering. It can help cover costs if you or your spouse need in-home care or nursing (because you're unable to perform basic daily activities), or if you need care in a nursing or assisted-living facility.¹ At minimum, it makes sense to complete or update a retirement plan and then stress-test it to see how you would manage potential long-term care costs. 
 

Even if retirement is several years away, now is a good time to start thinking about the steps you'll take when it's time to start living off your savings. "After putting money away for so long, many investors are surprised to find they don't have a strategy for converting their savings into a lasting retirement income," says Rob. "But making the shift from saving to paying yourself is critical." At least one to two years before you retire:

• Get to know your retirement income sources, including all retirement, bank, and brokerage accounts, plus other income (such as Social Security, a pension, annuities, or HSA funds). Know how much you'll receive from each source, when you can start taking distributions without a penalty, and how each source will be taxed. 
• Take a close look at your expenses, including money for needs (like food, housing, health care), wants (like travel and entertainment), and wishes (like gifts or a second home). Ask yourself about things like paying off your mortgage or other debts, relocating or downsizing, and how you'll cover health care costs. 
• Start planning your retirement income, including a comprehensive strategy for how much you'll spend, how you'll invest, how to get your money when you need it, and how to stay on track over time. To connect all the dots in a tax-smart way, consider working with a financial advisor, tax professional, or both. At minimum, for most investors nearing retirement, scaling back modestly and progressively on investment risk but boosting your allocation to cash and bonds for a portion of your portfolio (for money you may need soon) makes sense.