Planning to Retire This Year? Take These Steps Before Your Paychecks End

Getting ready for retirement can bring a mix of pressure, excitement, and a long list of things to handle. After decades of earning and saving, the transition is finally close.

If your final day on the job is approaching, you still have a limited window to put yourself in a stronger position to handle expenses once your salary stops. These three steps can help.

1. Figure out what will replace your paycheck

You need a clear picture of how much you spend each month to support your current lifestyle — or the one you want in retirement, which may include travel and new hobbies. Social Security can help cover part of those costs, but it is not meant to pay for everything. To make up the rest, you may need withdrawals from retirement accounts, cash savings, taxable investments, or even some side income.

Also remember that your retirement income may not begin immediately after you stop working. If you claim Social Security after retiring, processing time may delay those payments.

2. Build a withdrawal plan before leaving your job

Retirees often rely on a few dependable income sources, but you still need a monthly cash flow plan to cover any gaps. Having enough cash set aside to pay one or two years of living expenses can provide a useful cushion and make it easier to stay invested.

If you have several accounts — such as traditional, Roth, and taxable brokerage accounts — you should decide which ones to tap first. Roth withdrawals are tax-free, while traditional IRAs and 401(k)s eventually require minimum distributions. Taxable brokerage accounts can also trigger taxes on dividends and capital gains.

A financial advisor or tax professional can help you structure a withdrawal strategy so you know how to access each account. And if you are still working, you may have time to increase savings and maximize retirement contributions.

3. Plan for taxes and medical expenses

Taxes can surprise new retirees. One way to reduce the risk is to ask Social Security to withhold part of each payment for taxes. Health care is another area that can create unexpected costs, especially if medical problems arise. It is important to budget for these expenses and decide which coverage you will use. Medicare, retiree health insurance, COBRA, a spouse’s plan, or Affordable Care Act coverage are among the common choices.

You can enroll in Medicare starting three months before age 65. The initial enrollment window lasts seven months, and missing the deadline can create coverage gaps or penalties. Near-retirees should also factor in premiums, deductibles, possible long-term care needs, and other medical costs before stepping away from work.

Good planning can help you avoid major financial setbacks in retirement. A solid first year can also make the years that follow much easier.