6 Things to Do If You're Nearing Retirement

January 10, 2024
Planning to retire in 10 years or less? Find out what you need to know and do for a smoother transition.

If you're thinking of retiring within the next 10 years, you may feel like you're confronting quite a few "what ifs" and unknowns.

"Many retirees say transitioning from saving to living off their savings is one of the biggest challenges of retirement," says Rob Williams, CFP®, RICP® and managing director of financial planning, retirement income, and wealth management for the Schwab Center for Financial Research.

"But thinking through some of the most critical questions early on—like how much you'll have, how much you'll need, when to take Social Security, and how taxes could affect your savings—and then putting a realistic plan in place—can help take some of the pressure off."

And taking steps toward the retirement you want while you're still working can help you identify shortfalls and make adjustments before it's too late.

Here are six things you can do now to set yourself up for a smoother retirement when the big day comes. 

#1: Find out where you stand.

If you don't have a retirement plan yet, now is a good time to create one.

If you do have one, check it at least once a year to make sure it still matches your needs and goals. Here are some items that could change as you age: your retirement date, expected future expenses, savings tally, and potential income sources.

It's also a good idea to put your plan to the test from time to time. You can use a retirement calculator to see if you're saving enough. But you'll get more comprehensive, personalized results if you use a robust digital planning tool or work with a financial planner or advisor. Both can help you look at a range of scenarios and your probability of success given the variables unique to your situation (for example, if you have plans to relocate or start a small business in retirement, as well as your gift and estate plans, life expectancy, or other personal factors).

In addition to checking your retirement plan, Rob suggests checking your investment portfolio once a year to be sure it still makes sense for you. Things that may change as you near retirement include when you might start needing money, your risk tolerance, desired asset allocation, diversification of investments, and your approach to regular rebalancing. 

#2: Boost your savings, if you need to.

Whether you find yourself in catch-up mode or just want to save as much as you can before you stop working, you have options.

"First, if you have an employer-sponsored account—such as a 401(k), 403(b), 457(b), or Thrift Savings Plan—be sure to contribute at least up to the amount your employer will match, and certainly more if you can," says Rob. "In 2024, you can contribute up to $23,000. If you're at least 50 or will be by year's end, you can also make a catch-up contribution of $7,500, for a total of $30,500."

"Once you've contributed to your employer account—or if you don't have an employer account—consider contributing up to the maximum amount in a traditional IRA or Roth IRA," he adds. Remember, you can also make catch-up contributions to your IRA starting the year you turn 50.

"If you're eligible, you should consider using your Health Savings Account (HSA) to save for future health care costs," he adds. For your HSA, catch-up contributions are allowed starting the year you turn 55.

"Of course, you can also save in your regular brokerage account," Rob says. There's no limit on how much you can save in such accounts.

How much could you contribute in 2024?

How much could you contribute in 2024?
How much could you contribute in 2024?
Type of account  2024 contribution limit 2024 catch-up contribution Total allowed for 2024 with catch-up contribution
Employer retirement plan—401(k), 403(b), 457(b), or Thrift Savings Plan $23,000 $7,500 $30,500
Traditional IRA, Roth IRA $7,000 $1,000 $8,000
Health Savings Account (HSA) $4,150 (self-only) 
$8,300 (families)
$1,000 $5,150 (self-only) 
$9,300 (families*)

#3: Plan ahead for Social Security.

While you can start taking Social Security as early as age 62, doing so triggers a reduction in your retirement benefit. If you can wait, your future benefit grows. Once you hit "full retirement age," your Social Security income will increase up to 8% for every year you delay, until you reach age 70. After age 70, there's no upside to delaying.

"The decision on when to take Social Security depends heavily on your specific situation, including your other income sources, life expectancy, and your spouse's needs and circumstances," says Rob. "While there is no correct age for everyone to take it, we generally suggest waiting until you are full retirement age (or as old as 70) if you're in good health and can afford to wait, since deferring can pay off over time and provide higher income over a long retirement."
 

Retirement ages for full Social Security benefits

Retirement ages for full Social Security benefits
If you were born in… Your full retirement age is…
1954 or earlier You've already hit full retirement age
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67

#4: Consider tax-smart strategies now.

When you're still saving for retirement, it's important to prepare for the taxes you'll end up paying once you reach retirement. While tax laws and tax rates could change before you get there, you can still plan for these unknowns and set yourself up for a more tax-efficient outcome.

"One approach is to spread your savings across a variety of accounts with different tax treatments—say, by saving in a pre-tax 401(k), after-tax Roth IRA, tax-advantaged HSA, and a regular taxable brokerage account," Rob says. "With this kind of tax diversification, you can mix and match withdrawals from your different accounts to better control your taxable income."

Here's how to approach tax diversification depending on your current tax bracket: 

  • If you're in a lower bracket (0%, 10%, or 12%), consider maxing out your Roth savings because your tax bracket in retirement is likely to be the same or higher than it is today. 
  • If you're in a middle tax bracket (22% or 24%), it may be more difficult to predict your future tax bracket. Consider splitting your retirement savings between tax-deferred and Roth accounts so you can benefit from both tax treatments.
  • If you're in a higher tax bracket (32%, 35%, or 37%), your tax rate in retirement is likely to be the same or lower than it is today. It may make sense to maximize your tax-deferred accounts—such as your 401(k), 403(b), 457(b), or Thrift Savings Plan. 
     

Should you consider a Roth conversion before you retire?

Converting assets in a regular pre-tax IRA into Roth savings can give you the ability to withdraw earnings and contributions tax-free in retirement. But there are some things to consider beforehand:

  • You will have to pay taxes on the conversion, so make sure you have the funds on hand, preferably in a bank or taxable brokerage account, to cover them.
  • You will have to wait five years after the conversion before starting withdrawals. Otherwise, you'll have to pay income taxes on the earnings and a possible 10% penalty on the converted amount if you're under the age of 59½. 

A conversion can make sense if you expect to be in a higher tax bracket in retirement or want to leave your savings to an heir tax-free.

Converting assets in a regular pre-tax IRA into Roth savings can give you the ability to withdraw earnings and contributions tax-free in retirement. But there are some things to consider beforehand:

  • You will have to pay taxes on the conversion, so make sure you have the funds on hand, preferably in a bank or taxable brokerage account, to cover them.
  • You will have to wait five years after the conversion before starting withdrawals. Otherwise, you'll have to pay income taxes on the earnings and a possible 10% penalty on the converted amount if you're under the age of 59½. 

A conversion can make sense if you expect to be in a higher tax bracket in retirement or want to leave your savings to an heir tax-free.

#5: Get a head start on future health care costs.

Medicare is a big piece of the retirement health care puzzle. But it won't cover everything, and there are out-of-pocket costs. 

"Be sure to include the costs of premiums and out-of-pocket expenses in your retirement budget. When Medicare kicks in at age 65, it's reasonable to plan on spending about $450−$850 a month," Rob advises. But where you live, inflation, and other personal factors play a role, so consider talking to a financial planner for a more accurate estimate.

If you're eligible, an HSA can help you save for health care costs before and after you retire. An HSA lets you set aside pre-tax dollars to pay for qualified medical expenses (including Medicare premiums and out-of-pocket costs). Money you save and invest in your account also grows tax-free, and as long as you use it for qualified medical costs, you won't owe taxes on it. At age 65, you can no longer contribute to your HSA, but you can use any money you've saved in it to pay for qualified health care costs tax-free. After age 65, you can also use the funds for non-medical expenses without a penalty—you'll just owe ordinary income tax.

If you're receiving Social Security at age 65, you'll be enrolled automatically in Medicare Parts A (hospital) and B (medical). If you're not yet receiving Social Security, you'll need to sign up on your own. Keep in mind, Medicare has special enrollment periods, and signing up late can lead to penalties or gaps in your coverage.

Costs for Medicare include a deductible and coinsurance for Part A, and premiums, deductibles, and coinsurance for Parts B and D. You can also purchase Medigap to help with out-of-pocket expenses using Medicare. Medicare Advantage is another option that covers Medicare Parts A and B, and often includes services original Medicare doesn't cover, like routine dental and vision, through a private company.

About 60% of people will also need long-term care at some point, and the costs can be high. If you're not sure how you would cover these expenses, long-term care insurance might be worth considering. It can help cover costs if you or your spouse need in-home care or nursing (because you're unable to perform basic daily activities), or if you need care in a nursing or assisted-living facility.1 At minimum, it makes sense to complete or update a retirement plan and then stress-test it to see how you would manage potential long-term care costs. 
 

Retiring before age 65?

Until Medicare kicks in, health coverage options include health plans through the Health Insurance Marketplace, COBRA, private insurance, employer retiree insurance (if offered by your employer), insurance from your spouse's employer, and faith-based health care ministries.


Another option? Continue to work full- or part-time to keep health benefits. While most employers don't offer health benefits to part-time employees, a few do. 

Until Medicare kicks in, health coverage options include health plans through the Health Insurance Marketplace, COBRA, private insurance, employer retiree insurance (if offered by your employer), insurance from your spouse's employer, and faith-based health care ministries.


Another option? Continue to work full- or part-time to keep health benefits. While most employers don't offer health benefits to part-time employees, a few do. 

#6: Start thinking about retirement income.

Even if retirement is several years away, now is a good time to start thinking about the steps you'll take when it's time to start living off your savings. "After putting money away for so long, many investors are surprised to find they don't have a strategy for converting their savings into a lasting retirement income," says Rob. "But making the shift from saving to paying yourself is critical." At least one to two years before you retire:

  • Get to know your retirement income sources, including all retirement, bank, and brokerage accounts, plus other income (such as Social Security, a pension, annuities, or HSA funds). Know how much you'll receive from each source, when you can start taking distributions without a penalty, and how each source will be taxed. 
  • Take a close look at your expenses, including money for needs (like food, housing, health care), wants (like travel and entertainment), and wishes (like gifts or a second home). Ask yourself about things like paying off your mortgage or other debts, relocating or downsizing, and how you'll cover health care costs. 
  • Start planning your retirement income, including a comprehensive strategy for how much you'll spend, how you'll invest, how to get your money when you need it, and how to stay on track over time. To connect all the dots in a tax-smart way, consider working with a financial advisor, tax professional, or both. At minimum, for most investors nearing retirement, scaling back modestly and progressively on investment risk but boosting your allocation to cash and bonds for a portion of your portfolio (for money you may need soon) makes sense. 
     

1Most long-term care insurance policies contain exclusions, waiting periods, limitations, and terms for keeping them in force. Please ask us for full details and cost information.

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

Supporting documentation for any claims or statistical information is available upon request.

Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.

Rebalancing does not protect against losses or guarantee that an investor's goal will be met. Rebalancing may cause investors to incur transaction costs and, when a non-retirement account is rebalanced, taxable events may be created that may affect your tax liability.

Investing involves risk, including loss of principal.

Roth IRA conversions require a 5-year holding period before earnings can be withdrawn tax free and subsequent conversions will require their own 5-year holding period. In addition, earnings distributions prior to age 59 1/2 are subject to an early withdrawal penalty. 

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.

The Schwab Center for Financial Research is a division of Charles Schwab & Company, Inc.

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