You’re close to retirement and duly excited. Soon, you’ll be able to spend all the time you want with family, traveling, or hobbies. However, after years of putting money aside, you’re concerned about whether your funds will last throughout your post-employment years.
You’re not alone. To make sure you’re prepared, here are smart financial moves you should make just before retirement.
Keep Spending Under Control
For many people, saving for retirement can be challenging. Add poor spending habits, and saving is that much harder. Particularly in the years leading up to retirement, try to exercise restraint when considering purchases. You’ll be glad you did.
Have a Diversified Investment Portfolio
As you approach retirement, consider adjusting your portfolio to include a healthy mix of assets. A common guideline is to hold five to 10 years’ worth of living expenses in low-risk investments like bonds, CDs, and cash. This “safety net” can help you avoid selling stocks at a loss during market downturns.
For example, if you expect to need $50,000 a year in retirement, you might aim to keep $250,000 to $500,000 in conservative investments, with the rest remaining in growth-oriented assets like stocks.
An example near-retirement portfolio might look like:
- 40% stocks for long-term growth
- 50% bonds and CDs for stability
- 10% cash or cash equivalents for immediate expenses
Make the Most of Social Security Benefits
After years of hard work, you deserve to get the most out of your Social Security. The key is timing and strategy.
Your monthly benefit can vary significantly depending on when you start claiming—waiting until full retirement age or later can substantially boost your payments. Moreover, there are over 500 different claiming strategies designed for different situations, including those for married couples, divorcees, and surviving spouses.
Getting expert advice can make a real difference. You can speak directly with Social Security representatives, but you might also consider consulting a Registered Social Security Analyst (RSSA), who can help you map out the best claiming strategy for your personal goals.
Consider Another Version of the 4% Rule
Many retirees have heard of the “4% rule,” which suggests withdrawing 4% of your portfolio in the first year of retirement, then adjusting for inflation each year to make your savings last about 30 years. However, in today’s lower-return environment, many experts recommend a more cautious approach.
Some financial planners recommend aiming for a withdrawal rate of 2.8% to 3.3% to better protect against risks such as market downturns and inflation. For example, with a 3% average annual inflation rate, your dollar’s purchasing power would shrink by more than half after 25 years.
While the original 4% rule had a high historical success rate, newer projections warn that a 4% withdrawal could carry a much higher risk of depleting your savings, especially if future stock and bond returns are lower than historical averages. Regardless, your withdrawal rate should take into consideration your unique needs, market performance, and other relevant factors.
Be Realistic About How Much Money You’ll Need
It’s easy to underestimate how much you’ll actually spend in retirement. Many people focus on essentials like housing, utilities, and groceries—but overlook costs like travel, hobbies, home maintenance, healthcare, and gifts for family.
To avoid surprises, build a detailed retirement budget that includes:
- Regular living expenses (housing, food, insurance, transportation)
- Healthcare premiums and out-of-pocket medical costs
- Leisure activities (travel, golf, hobbies, entertainment)
- Big-ticket items (home repairs, new vehicles, major purchases)
- Unexpected expenses (family emergencies, inflation bumps)
Once you have a full picture, compare your expected expenses to your anticipated income streams (Social Security, pensions, withdrawals from savings). A good rule of thumb is to plan for spending about 70% to 80% of your pre-retirement income, but your number could be higher if you have an active lifestyle.
Always pad your estimate with an extra 10%–15% buffer for unexpected costs. It’s better to have a surplus than to run short.
Consider Long-Term Care Insurance
A primary reason many people worry about running out of money in retirement is that they fear an unknown large expense due to a major health event such as a heart attack, stroke, or cancer diagnosis.
Therefore, before you enter retirement age, you may want to look into long-term care insurance. Unlike traditional health insurance, long-term care insurance is meant to cover long-term services and support in a variety of settings.
The Bottom Line
To make the money you’ve saved last throughout your retirement, you must do some serious planning. And that includes being honest about your expected lifestyle and researching how to best manage your nest egg.
If the issue is debt and retirement, remember that you can always seek debt relief. That way, you can enjoy your post-employment years to the fullest.
