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Most retirement planning conversations focus on a number: how much you need to have saved. But the twelve months before you actually retire are less about hitting a target and more about executing a successful transition. This is the year when planning is crucial and when several of the most consequential moves in your financial life need to happen.
The list below isn't exhaustive. It's focused on the things that are important to many retirees: the ones that, done well, set up the next 20 to 30 years for a successful retirement.
Before your last paycheck, you want liquid reserves in place.
We typically recommend holding one to two years of living expenses in short-term U.S. Treasuries or a money market fund, with another year's worth in slightly longer-duration Treasuries. This creates a stability buffer that lets your investment portfolio stay invested through the inevitable early market volatility without forcing you to sell at the wrong time.
The sequence-of-returns risk (the danger of experiencing a significant market decline in the first few years of retirement) is real. If you retire into a down market and need to sell stock positions to fund living expenses, you permanently impair the recovery potential of your portfolio. Build this buffer before you retire, while you still have income. Don't wait until after your last day to figure out where the first year of spending is coming from.
This one rarely makes financial checklists and it should be near the top.
The transition from a working life to open-ended retirement is harder than most people anticipate, and not in the financial sense. Relationships, identity, daily routines, and a sense of purpose are all bound up in work. We've seen clients who are financially ready to retire delay it for years because they haven't answered this question: what are you retiring to?
Before you leave your job, think carefully about what will fill your time in a way that feels meaningful. Travel, grandchildren, a second career, board work, volunteering, a creative pursuit? Three decades of financial planning deserves the same deliberate thought about how you want to actually live it.
If you're retiring before Medicare eligibility at 65, health insurance is one of the most pressing near-term decisions you'll face in retirement.
Your options will depend on your situation. If your employer offers retiree health benefits, understand exactly what they cover, what they cost, and how they coordinate with Medicare once you reach 65. If you're leaving without retiree coverage, you'll need to bridge the gap with COBRA (typically available for up to 18 months after leaving employment), an ACA marketplace plan, or coverage through a spouse's employer plan if that's available.
ACA premiums are income-sensitive, which creates a planning angle worth discussing with your financial advisor. If you can manage your income carefully in the gap years between retirement and Medicare, you may qualify for subsidies that reduce your premium costs.
If you have a pension, the year before retirement is when you need to understand it thoroughly and make a decision that is, in most cases, irrevocable.
The core question for most pension recipients is whether to take the single-life annuity (maximum monthly benefit, no survivor benefit) or the joint-and-survivor option (reduced monthly benefit, but your spouse continues to receive income if you die first).
This decision involves your health, your spouse's health, your other income sources, and your financial picture overall. It also involves the financial health of the pension itself. Some public and private pension funds carry meaningful long-term risk, which factors into how much certainty you should place on the income stream.
Whatever approach makes sense for your situation, don't make this decision on the day HR presents you with the form. Give it the time it deserves, with an advisor who can run the numbers for your specific scenario.
The period between your last paycheck and the start of Required Minimum Distributions is one of the best tax planning opportunities of your financial life. Most people don't take advantage of it.
When you stop working, your earned income drops to zero (or near it). If you haven't started Social Security yet and aren't yet subject to RMDs, your taxable income may be lower in this window than it has been in decades, and lower than it will be once RMDs kick in at age 73 or 75.
That low-income window is the time to consider converting dollars from a Traditional IRA into a Roth IRA. You pay taxes on the conversion at your current rate, and those dollars grow tax-free and are never subject to RMDs. The benefit compounds over time: less RMD income means lower tax brackets in your seventies, potentially lower Medicare IRMAA surcharges, and a smaller inherited IRA burden on your children or other heirs.
In your working years, income is simple: money arrives in your checking account every two weeks. In retirement, you have to create that structure yourself from a mix of sources (portfolio withdrawals, Social Security, possibly a pension or rental income) across multiple account types with different tax treatments.
The sequence in which you draw from accounts (taxable brokerage first, then tax-deferred, then Roth, or some variation based on your specific situation) can be worth hundreds of thousands of dollars over a 25-year retirement.
Before you retire, decide:
Where will your monthly spending come from? Map your income sources (Social Security if you're claiming it, pension income if applicable, any rental or other income) against your monthly budget. The gap is what your portfolio needs to cover.
Which account do you draw from first? The conventional wisdom about account sequencing is a starting point, not a rule. The right answer depends on your Roth conversion strategy, your tax bracket, your estate goals, and the composition of your overall portfolio.
How will distributions be automated? Set up a systematic process, specifically monthly transfers from your investment accounts to your checking account, so that your retirement income arrives predictably without requiring active decisions or panic during market downturns.
Retirement is a transition with a fairly long runway, and the year before you leave work is when most of the important decisions need to happen.
The items above aren't check-the-box administrative tasks. Each one involves trade-offs, real numbers, and in several cases decisions you can't revisit later. That's precisely why this period deserves attention.
If you're within a year or two of retirement and want to work through these questions in detail, this is exactly the kind of planning we do with clients at Arcadia Private Wealth.
Disclosure: Arcadia Private Wealth LLC is an Investment Adviser offering services in California and in other jurisdictions where exempt from registration. Registration doesn't imply a specific skill level or endorsement. Not legal/accounting/tax advice. Information is believed accurate but not guaranteed and isn't a complete analysis. All investments carry risk of profit or loss. Consult a professional before investing. Opinions reflect authors' views at time of posting and may change. Not responsible for third-party comments. Nothing here is an offer to buy/sell securities or personalized financial, legal, or tax advice. Consult an attorney or tax professional for your specific situation.
Grant Webster, CFP®, TPCP®
Founder, Wealth Advisor