Personal Finance

The End-of-Year Financial Checkup That Every Near-Retiree Needs to Do Now

David Beren

Published: December 20, 2024 2:11 pm

As the end of the year approaches, it’s only right that people thinking about retirement consider doing a top-down financial check of where they stand. Whether retirement is 3, 5, or 10 years away, looking at where you are right now financially is a good idea, especially compared to the previous year. 

Even though everyone has different goals and needs in retirement, some principles remain true. One is to estimate your future expenses, as you may have moved in the last year, paid off a mortgage, or taken out a new one. You should also consider where things stand regarding Social Security. All these tips and more should be part of any financial checkup that every near-retiree wants to do as soon as possible. 

Review Retirement Savings

One of the first steps you can take with your end-of-year checkup is to use a retirement plan calculator like the one from Bankrate.com to see where you stand. You can input your current age, the age you plan to retire, and other factors like your current income, how much you have saved right now, and how much you plan to spend each year in retirement. 

A tool like this gives you a good visual sense of where you stand. This visual look will help you not only calculate where you are today but also provide a look at how much savings you will have left every year. Ultimately, you want to look at everything in your retirement accounts combined. This would include your current annual income on top of your 401(k), IRA, HSA, and any money sitting in a savings account. 

These calculators are also a good idea for examining your retirement savings and determining whether you need to increase your contributions in the following year or before the end of the year to catch up. This is especially true if you are over 50 and have catch-up options available as part of a 401(k) program. 

Take A Guess At Future Expenses

It’s not always easy to estimate your future expenses, as knowing precisely what you plan to spend can be challenging. Of course, you can try to gauge exactly how much you think you will spend on housing, travel, lifestyle changes, and even healthcare through things like Medicare. 

When estimating future expenses, consider whether you plan to downsize and move to another city. You should also likely leave room for increasing healthcare needs, so it’s essential to ensure this number is at least somewhat fluid, as predicting health needs is near impossible. 

One of the reasons why estimating future expenses is so helpful is because it allows you to set aside money or plan for big expenses. This could include but is not limited to long-term health care, household renovations, and that world trip you’ve been planning for 25 years. 

Downsize Your Expenses

As you get closer to your retirement goal, consider downsizing your expenses as much as possible. With your income more limited in retirement than prior, reducing your expenses is the best way to ensure you take full advantage of the available money you have to enjoy your golden years. 

For this reason, consider eliminating any high-interest debt, like a credit card or personal loan, before retiring. If you have the means while working, consider paying off a mortgage to reduce your retirement expenses. 

Simplifying your budget using a budgeting calculator is a great way to visualize exactly how much you need to spend to get out of any debt you have. To assist you with this downsizing opportunity, Quicken offers a fantastic budget calculator to help you see exactly where your spending is going. You can use this tool to get a visual look to help you understand where to make big cuts to prepare for limited income while retired. 

Look At Asset Allocation 

Depending on how close you are to retirement, looking at asset allocation is a great idea at the end of every year. If you are close to retirement within the next few years, consider adjusting your level of risk as far as the split between how much you are invested in the market, bonds, savings, and more. If your current split is 50/50 stocks and bonds, and you had strong returns in 2024, you should consider maintaining the same balance. 

You should understand how well your money has performed since the last time you did a review. Does your risk tolerance now meet your comfort level as retirement draws near? What if your 50/50 split did not have good returns? Consider leaning more into stocks or bonds accordingly until you hit your target retirement number. 

Adjusting your portfolio is super important, and a good financial manager should meet with you quarterly if not every six months. Additionally, it’s helpful to assess your credit report, score, and any of your existing insurance coverage while reviewing your asset allocation. 

What About Annuities? 

On the subject of asset allocation, talk with a financial manager about annuities and how they would fit with your level of risk tolerance and financial goals. Annuities can provide guaranteed income during your lifetime as part of your retirement strategy. The purpose here is to provide you with a steady cash flow while allowing you to make an initial investment into the annuity by paying a premium monthly and then determining when your payouts will begin post-retirement. The best reason to consider an annuity is that this income grows while tax-deferred. 

You can choose between a Fixed, Variable, or Indexed annuity, depending on what you want from this investment. If you want a guaranteed minimum interest rate, you go with a Fixed annuity, while Variable annuities fluctuate based on how well the investments are doing. This could mean your payments are larger or smaller than expected. Lastly, an Indexed annuity pays you out based on the performance of an equity index like the S&P 500. 

Are You Ready For Social Security? 

Understanding your Social Security options can be critical depending on your retirement age. The most important thing to know about Social Security is that the amount you will receive varies based on the age at which you start receiving payouts. 

If you want to start making claims at 62, the first year of eligibility, the amount of money is approximately 30% less than it would be at 67. For anyone born after 1960, 67 is considered the Full Retirement Age, or the age at which you qualify for 100% of your Social Security retirement benefits. 

For every month you start early with Social Security before you turn 67, the payout amount drops by 0.5 percentage points on average for each month you start receiving benefits. This means you could lose as much as 30% if you begin making withdrawals at 62. However, if you wait until you turn 70, you could earn as much as 132% of your full Social Security benefit, which is calculated based on 35 years of your highest earnings during your lifetime.