Retirement is an exciting milestone, but one you really need to prepare for extensively. If you're planning to retire in about a year's time, make sure to check these critical items off your list.
1. Evaluate your savings
You're probably aware of how much savings you have in your IRA or 401(k) plan. But do you know how much annual income your savings will provide you? As a general rule, you can expect to withdraw about 4% of your savings balance annually to avoid depleting your nest egg prematurely. Of course, you can play around with this figure and adjust it as you see fit, but for the purpose of this example, we'll go with that classic 4%.
Now, let's say you're sitting on $500,000 in retirement savings. That might seem like a ton of money. But if you're only looking to withdraw 4% annually, it gives you just $20,000 per year to spend. That's not necessarily terrible if you have other income sources at your disposal, like Social Security, but it doesn't necessarily mean you're retiring rich, either. Therefore, be aware of what your savings will actually do for you income-wise rather than fixate on what seems like a grand number on a screen.
2. Assess your debt
The more debt you retire with, the more your limited income will be monopolized by pesky monthly payments. Retiring with a small amount of debt isn't necessarily terrible, but retiring with a ton of it could put a huge strain on your resources down the line. Therefore, if you're sitting on, say, $20,000 in credit card debt and another $40,000 in the form of an unpaid mortgage, you might think about delaying retirement until you've managed to knock some of it out (keeping in mind that you should first focus on unhealthy debt, like that of the credit card variety, before paying down a mortgage).
3. Develop a Social Security strategy
Chances are, you'll rely on Social Security to some extent once you retire. That's why you need to put some thought into when you'll be filing for benefits. You're allowed to claim Social Security as early as age 62, but if you file before reaching full retirement age (either 66, 67, or somewhere in between, depending on the year you were born), you'll reduce your benefits, and most likely for life. There's also the option to delay benefits past full retirement age and grow them by 8% a year up until you turn 70.
The decisions you make with regard to Social Security will likely boil down to factors such as your level of personal savings and your health (the healthier you are, the more it pays to delay benefits). But either way, nail down a filing strategy rather than assume that you'll sign up for benefits the moment you stop working.