Retirement Guide: One year out
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This story is part of Money magazine's Retirement Guide 2013, where you'll find strategies to guide you through the last stretch, starting at 10 years out, then five years, one year, and, finally, your first year of leisure.
With one year left until retirement, you're in the final stretch. It's time to prepare for the transition. Practice your budget, plan your income sources, and take action on health insurance.
What to do
Now dial back on stocks. At this point, you'll want to start shifting away from equities, as the combined hit of withdrawals and a market downturn could compromise the longevity of your portfolio, says Baltimore financial planner Crystal Alford-Cooper.
The max you should have in stocks: 40% to 50%.
Stress-test your spending. You're likely to have a sense now of your fixed expenses for the next few years. So outline a spending plan, then measure it against your nest egg to make sure you won't blow through your savings. Start by filling in the budget worksheet on Fidelity's Retirement Income Planner (fidelity.com).
Related: 25 Best Places to Retire
As a rule, you can withdraw up to 4% of savings the first year, then adjust by inflation in subsequent years, and have a good shot at your money lasting 30 years. Inventory your assets and see whether 4% -- along with Social Security, pensions, and part-time work -- will cover your expenses. If not, you'll need to trim costs.
Whatever budget you decide on, practice living on it now. You'll reality-check your plan, while there's room for error.
Shore up your income. After health care costs, retirees' biggest fear is running out of money, AARP found.
One solution: a lifetime immediate annuity. Basically, you pony up a chunk of money in exchange for a monthly check for life. A 65-year-old man who invested $100,000 today would get about $550 a month.
You can't access money you put in, however, so invest only enough to cover the shortfall in basic living costs left after other guaranteed income.
Also, don't go all in right away, since interest rates partly determine payouts. Invest in stages, and you'll benefit if rates rise. Shop at immediate-annuities.com.
Pick up the pension check. Lucky enough to have a traditional pension? Find out what choices you have and how they affect your benefit.
More than half of private industry workers with pensions can now opt to take their payout as a lump sum, up from 23% 15 years ago, reports the Labor Department. Don't bite. Sure, you can invest the money, but it'd be tough to generate the same income the annuity version guarantees over a long retirement.
Related: Couple plans for the loss of a pension
Another decision point: With the monthly check, you'll have to choose whether to elect a survivor option that reduces your payouts but provides a 100%, 75%, or 50% benefit to your spouse should you die first.
"You don't get a second chance on this decision," says New York elder-law attorney Ann-Margaret Carrozza.
So project what would happen to your partner's income without it. Also investigate whether you'd be better off taking the full benefit and using a portion to buy life insurance.
Stockpile cash. People tend to enter retirement with most of their money tied up in investments.
Bad idea, says wealth planner Tim Golas. He suggests having enough cash to fund the first 12 months of living expenses, separate from your emergency fund. "This creates a safety valve, so you're not at the whims of the market," he says.
Related: Where's your dream retirement?
Start funneling money into a savings account, cutting your 401(k) contribution to just capture the company match if needed. As a backstop, move a portion of an IRA into a short-term bond fund.
Know the Medicare windows. Retiring before 65? Now's the time to select that health insurance plan.
Retiring around 65? You can sign up for Medicare -- at medicare.gov -- up to three months before your birthday month, and up to three months after. Enroll beforehand and coverage starts the first day of your birth month; after, and it'll be delayed by up to six months.
Retiring after 65? Sign up for Part A, which is free, pays for hospital care, and may cover gaps in your employer plan; for the other parts, you have eight months to join after leaving work.
Related: 4 Medicare enrollment mistakes to avoid
Keep in mind that premiums increase 10% a year for each 12-month period you delay once your window closes. For help understanding your options, use the tools at mymedicare.gov.
More from Retirement Guide 2013:
Countdown to retirement: 10 years to go
Retiring in 5 years? Do this now
You've retired! Now put your plan to the test