6 Things to Do Before You Retire

Leaving the working world without a retirement blueprint is like diving into a swimming pool without checking the depth of the water. You might do just fine. You might also seriously regret your (in)action.

It isn’t just a matter of signing up for Medicare and trusting that Social Security plus whatever retirement fund you have will see you through your golden years. “Trust” isn’t a good word to use when it comes to your long-term financial security.

A much better word is “action.” Take charge of your retirement by taking action. Here are half a dozen important tasks to accomplish, starting now.

1. Do the math

First, you need to know how much money you can expect when you stop working. From there, you can figure out whether your resources will cover your expenses in retirement.

A crucial piece of the puzzle is deciding when to claim Social Security. Claim too soon and you’ll lock yourself into a permanently reduced benefit. For insider tips, see “12 Ways to Maximize Your Social Security Checks.”

Another essential tactic is creating a household budget — and being ready to re-create it as you go. While some costs will decrease (or even disappear) in retirement, other expenses will likely pop up. For example, you might need to hire out certain chores or pay to modify your home so that you can age in place.

An emergency fund should cover some of those costs, but not all of them. Instead, plan to add line items in your budget as your situation changes: landscape service for when you’re no longer able to follow your own lawnmower, for instance, or a once-a-week housekeeper to do the heavier cleaning that you can’t manage.

If you wonder whether you’ll have enough to cover these extras, start brainstorming ways to cut costs. For example, the famous “senior discounts” can help you cut back on the price of meals, movie tickets and more.

You could decide to keep your car longer instead of trading in every four or five years. Or why not revamp holiday giving traditions, such as “Gifts will be given only to those under 18 or over 80”?

2. Prepare to pivot

Suppose you’ve done the preliminary math and aren’t wild about the answers. For example, maybe:

• Your retirement 401(k) account isn’t as robust as it should be, because your jobs always featured low (or no) employer match.
• Recent inflationary shocks to your budget make you wonder how you’d handle future price jumps once you’re on a fixed income.
• Because full-time parenthood took a decade out of your work life, your Social Security benefit will be good but not great.
• Your cash reserves dipped due to an expensive midlife divorce.

This doesn’t mean your golden years are doomed. It just means you find ways to be flexible in your planning. Perhaps you could work another year or two instead of quitting at 65, or even work part-time during retirement. It might be time to pare back on helping your adult kids, because that money could boost your liquid cash reserves.

Rather than keeping the family home you might consider downsizing, which can mean lower overall homeownership costs as well as a cash infusion. Or you could keep the home and invite friends to move in, becoming part of what AARP calls “the ‘Golden Girls’ generation.”

To be clear: You might not end up having to do any of these things. After all, you don’t have to take a required minimum distribution until age 72, which means your retirement nest egg still has years to grow. But building a little flexibility into your retirement lifestyle is a good idea.

3. Understand how Social Security is taxed

As the kids say: It’s complicated.

Up to 85% of Social Security retirement benefits could be taxable, based on what the IRS calls “combined income.” Your combined income is the sum of:

• Your adjusted gross income
• Any nontaxable interest
• One-half of your Social Security benefits

However, Social Security is tax-free up to $32,000 of combined income if you’re married and filing jointly; for a single person, it’s about $25,000. After that, you’ll pay tax on 50% of your benefits. Once your combined income hits $44,000 for joint filers and $34,000 for individual filers, up to 85% of your benefits could be taxed.

In other words: Your days of paying federal income tax might not end when you quit working. Having an idea of how much you might pay in taxes will prevent any nasty shocks to your retirement budget later on.

Incidentally, if Social Security is your only retirement income, then you probably won’t have to worry about being taxed on it.

4. Plan for your RMDs

Required minimum distributions, also known as RMDs, begin once you reach age 72, and they will likely have an impact on your tax bill. These distributions are withdrawals the government requires you to take from traditional retirement accounts. But don’t even think about trying to reduce the tax hit by skipping a year or skimping on the amount you withdraw. The IRS imposes a 50% excise tax on the money you didn’t take. Ouch.

You don’t have to spend these distributions, by the way. You just have to take them out. If you don’t need the money right away, invest it or use it to plump up cash reserves. Or you could donate the money as a “qualified charitable contribution,” which satisfies the RMD requirement for that year and also ensures you won’t be taxed on the distribution.

Note: The RMD rules don’t apply to a Roth IRA. You can leave that where it is and let it grow, which is one way to avoid depleting your retirement nest egg too soon. For more information, see “Why Roth Retirement Accounts Are Now Even Better.”

5. Budget for medical expenses

Sad to say, Medicare doesn’t cover all health services. For example, most dental work won’t be covered by original Medicare. Routine vision care and the cost of hearing aids probably won’t be, either.

Maybe you won’t need hearing aids. But even if you don’t wear glasses or contacts now, you can anticipate that your vision could change as you age. And according to the American Dental Association, older adults often enter “a second round of cavity-prone years” due to issues like medication-related dry mouth.

Can’t fight biology! But you can plan for it. Research dental and vision insurance plans, and if hearing loss runs in your family (or you’re already starting to experience it), then find out how much you could expect to pay for care.

Then, make “stuff Medicare doesn’t cover” a line item in your retirement budget.

You can also skip original Medicare and shop for a Medicare Advantage plan, some of which include dental, vision and hearing coverage.

6. Determine your living situation

Some folks don’t plan to move upon retiring, because they’re already right where they want to be. Others want a change of scenery and/or to move closer to their children. But retirement isn’t only about where you live — it’s about how you live.

As we age, proximity to good health care is essential. So is having a way to get there, whether that’s public transit, rideshares or help from relatives.

Speaking of which: If your kids and/or extended family members want to help you out but don’t live nearby, consider moving closer. They have their own lives, remember, and driving two hours each way to provide that help is a lot to ask.

Another factor, whether you stay or whether you go, is the relative safety of your environs. Maybe that seaside town is increasingly known for street crime, so do a little research before you buy. Or maybe that rent-controlled apartment you’ve kept for three decades is in a neighborhood that’s getting sketchier by the day.

A few other things to consider:

• Will your Social Security be subject to state income tax?
• Is there a high cost of living where you are and where you want to move?
• What about recreation/entertainment options? Moving to the middle of nowhere could mean having to drive an hour just to attend a play, hear a concert, see a movie or visit a library.

Choose carefully, because this will be your new normal.