What Should I Do in the Final Year Before Retirement?

The final year before retirement can feel exciting, stressful, and a little surreal. After decades of working, saving, paying bills, raising a family, and trying to make responsible financial decisions, you’re finally close enough to see retirement clearly. But that also means the decisions start getting very real.

This is the year where retirement planning stops being theoretical. You’re no longer asking, “Will I retire someday?” You’re asking, “Can I actually make this work next year?” In this article, we’ll walk through five smart things to do in the final year before retirement so you can move into retirement with more clarity, confidence, and control.

Key Point / Summary

The final year before retirement should be used to test your plan, organize your income, prepare for healthcare, reduce unnecessary surprises, and make sure your investment strategy matches your new life.

Short on time?  Here are the five key things to focus on:

• Confirm your retirement income plan.
• Build your first-year retirement paycheck strategy.
• Review healthcare, Medicare, and insurance.
• Stress-test your plan before you leave work.
• Prepare emotionally and practically for the lifestyle change.

The goal isn’t to make retirement perfect. That’s impossible. The goal is to avoid walking into retirement blind.

Before you give up your paycheck, you want to know where your income will come from, how much you can safely spend, what happens if the market drops, how taxes may affect your withdrawals, and whether your plan still works if life doesn’t go exactly as expected.

If you’re within one year of retirement, this is the perfect time to complete a Retirement Readiness Review. You don’t need more generic opinions. You need to test your actual numbers and see whether your retirement plan can support the life you want.

What Should I Do in the Final Year Before Retirement?

In the final year before retirement, you should move from general retirement planning to specific retirement preparation. That means turning your savings, Social Security, pensions, investments, taxes, healthcare, and spending goals into a real plan for income.

A good final-year retirement checklist should help you answer questions like:

• When exactly will I retire?
• How much income will I need every month?
• Where will my income come from?
• When should I claim Social Security?
• What happens if the market drops right after I retire?
• How will I pay for healthcare?
• What should I do with my 401(k)?
• How much should I keep in cash?
• How will taxes affect my retirement income?
• What lifestyle changes should I prepare for?

This is not the year to “wing it.”

Retirement is one of the biggest transitions you’ll ever make. The final year gives you a chance to catch problems while you still have time to adjust.

1. Confirm Your Retirement Income Plan

The first thing you should do in the final year before retirement is confirm your retirement income plan.

This sounds obvious, but what I’ve found after working with hundreds of people over the last 22+ years is the vast majority of people enter retirement with a pile of accounts instead of a real paycheck strategy. They know how much they’ve saved. They know roughly when they want to retire. But they don’t know exactly how their savings will turn into monthly income.

That’s a problem.

When you’re working, your paycheck does a lot of heavy lifting. It tells you how much money is coming in, when it’s coming in, and how much you can spend. Once that paycheck stops, you need to replace it with a system.

Your retirement income plan should answer one major question:

How will money move from your retirement assets into your checking account every month?

That means you need to identify all possible income sources, including:

• Social Security
• Pensions
• 401(k) withdrawals
• IRA withdrawals
• Roth IRA withdrawals
• Taxable investment accounts
• Cash savings
• Annuity income
• Rental income
• Part-time work
• Spousal income

Then you need to determine how much each source will provide, when it starts, how reliable it is, and how it will be taxed.

For example, Social Security may provide lifetime income, but the amount depends on when you claim. A pension may provide predictable income, but you may need to choose between a single-life payout or survivor benefit. Investment accounts may provide flexibility, but they can rise and fall in value. Roth accounts may offer tax-free withdrawals if rules are met, but you probably don’t want to spend them without a clear strategy.

This is also the year to separate your income into two categories: essential expenses and lifestyle expenses.

Essential expenses include things like housing, groceries, utilities, insurance, taxes, transportation, and healthcare. Lifestyle expenses include travel, hobbies, gifts, home upgrades, eating out, and helping family.

The more your essential expenses are covered by predictable income sources, the more stable your retirement may feel. The more you rely on investments for basic living expenses, the more important it becomes to manage market risk and withdrawal timing carefully.

This is where many retirees get tripped up. They look at their investment balance and assume they’re ready. But retirement readiness isn’t just about how much money you have. It’s about how that money turns into income.

Before you retire, you should know your monthly income gap. That’s the difference between your predictable income and your desired spending.

For example, if you need $7,000 per month to live comfortably and Social Security plus pensions will provide $4,500 per month, your income gap is $2,500 per month. That gap has to come from somewhere. Usually, it comes from savings and investments.

Once you know the gap, you can test whether your portfolio can reasonably support it.

This is exactly why the final year before retirement is so important. You still have time to make adjustments. You may decide to work six extra months, delay Social Security, reduce debt, increase cash reserves, adjust your investment allocation, or change your spending plan.

A Retirement Readiness Review can help you turn your accounts into a clear income plan before your paycheck stops.

• Identify every retirement income source.
• Separate essential expenses from lifestyle expenses.
• Calculate your monthly retirement income gap.
• Decide which accounts will be used first.
• Test whether your savings can support your desired income.

2. Build Your First-Year Retirement Paycheck Strategy

The second thing to do in the final year before retirement is build your first-year retirement paycheck strategy.

This is different from having a general retirement plan. A general plan might say, “We can afford to withdraw $60,000 per year.” A paycheck strategy answers, “Where exactly will that $60,000 come from, and how will it arrive each month?”

That level of detail matters.

The first year of retirement is a major adjustment. You’re going from receiving a steady paycheck to creating your own paycheck. If you don’t have a system, retirement can feel uncomfortable—even if you have plenty of money.

A good paycheck strategy should answer:

• How much will go into checking each month?
• Which account will fund those deposits?
• Will withdrawals happen monthly, quarterly, or annually?
• How much will be withheld for taxes?
• How much cash should stay available?
• What expenses will be paid automatically?
• What expenses will require manual planning?

You also need to decide how much cash to hold going into retirement.

There’s no one-size-fits-all answer, but many retirees like having enough cash to cover several months to a few years of spending needs. The right amount depends on your income sources, risk tolerance, investment strategy, and comfort level.

Cash doesn’t usually provide high long-term growth, but it can provide something very valuable: breathing room.

If the market drops during your first year of retirement, cash reserves may help you avoid selling investments at a bad time. That doesn’t mean you should keep everything in cash. Too much cash can create inflation risk and missed growth. But having too little cash can make retirement feel fragile.

The final year before retirement is also a good time to simplify your financial life.

You may want to:

• Consolidate old retirement accounts if appropriate.
• Review beneficiaries.
• Organize bank accounts.
• Set up direct deposits.
• Automate bill payments.
• Create a retirement spending account.
• Track current spending for several months.
• Review subscriptions and recurring expenses.
• Pay off small debts if it improves cash flow.
• Create a system for quarterly tax payments if needed.

This may sound boring, but it’s the kind of boring that prevents problems.

You don’t want to spend your first few months of retirement wondering which account to pull from, how much tax to withhold, or whether you’re spending too much. You want the mechanics of retirement income to feel as smooth as possible.

This is also where you should be careful with large one-time purchases.

Many people retire and immediately want to travel, remodel the house, buy a vehicle, or help family. Those things may be perfectly fine, but they should be included in the plan. Big expenses in the first year can affect cash reserves, investment withdrawals, taxes, and long-term sustainability.

The goal is not to say no to everything. The goal is to know the trade-offs before you say yes.

A first-year retirement paycheck strategy gives you confidence because it makes retirement tangible. It turns the idea of retirement into a working monthly system.

• Decide how much monthly income you need in checking.
• Choose which accounts will fund your first year.
• Build an appropriate cash reserve.
• Set up tax withholding or estimated tax payments.
• Plan for large first-year retirement expenses before they happen.

3. Review Healthcare, Medicare, and Insurance

The third thing to do in the final year before retirement is review healthcare, Medicare, and insurance.

This is one of the biggest areas people underestimate. Healthcare can become a major retirement expense, and the rules can be confusing depending on your age, employment status, spouse’s coverage, and retirement date.

If you’re retiring at 65 or older, Medicare will likely be a major part of your healthcare plan. You’ll need to understand the basics of Medicare Part A, Part B, Part D, Medicare Advantage, and Medicare Supplement plans.

You don’t need to become a Medicare expert, but you do need to know what applies to you.

Important questions include:

• When should I enroll in Medicare?
• Will I need Part B right away?
• Do I need a prescription drug plan?
• Should I choose Medicare Advantage or a Medicare Supplement?
• Will my spouse need separate coverage?
• How will retirement affect my employer health insurance?
• What will my monthly premiums be?
• What out-of-pocket costs should I expect?
• Could my income affect Medicare premiums?

If you need help figuring out Medicare, I have found a service called Boomer Benefits to be very helpful.  Just so you know, I have no affiliation and get no compensation from Boomer Benefits, but my clients have found them to be very helpful, and there are no out of pocket cost if you chose to work with them.

Now, if you retire before age 65, the healthcare question can be even bigger. You may need to bridge the gap through COBRA, a spouse’s plan, private insurance, Affordable Care Act marketplace coverage, or another option.

This is not something to figure out after your last day of work.

Healthcare coverage gaps can be expensive. Missing enrollment deadlines can create penalties. Choosing the wrong plan can limit provider access or increase out-of-pocket costs.

You should also review other insurance coverage during the final year before retirement.

That includes:

• Life insurance
• Disability insurance
• Long-term care insurance
• Homeowners insurance
• Auto insurance
• Umbrella liability insurance

Some insurance needs may decrease in retirement. Others may become more important.

For example, disability insurance may be less necessary once you’re no longer relying on earned income. Life insurance may or may not still be needed depending on your spouse, debts, pension choices, legacy goals, and estate plan. Long-term care planning becomes more important because a major care event can put pressure on retirement assets.

You should also review your emergency plan.

What happens if one spouse has a major health event? What happens if long-term care is needed? What happens if cognitive decline becomes an issue? Who knows where the documents are? Who has access to accounts? Who is legally able to help?

These aren’t fun questions, but they’re responsible questions.

The final year before retirement is a good time to make sure your financial plan and insurance plan are working together. You don’t want to find out too late that a missing coverage decision or outdated beneficiary creates a problem.

This is also a good time to check your estate documents, including wills, powers of attorney, healthcare directives, and beneficiary designations. These documents may not feel urgent when everything is fine, but they become extremely important when life changes.

A Retirement Readiness Review should look beyond investments and include healthcare and insurance considerations because retirement isn’t just about growing money. It’s about protecting your income, your spouse, and your options.

• Confirm how you’ll get health insurance after retirement.
• Understand Medicare deadlines and plan choices.
• Review life, long-term care, home, auto, and umbrella insurance.
• Check beneficiaries and estate documents.
• Prepare for healthcare costs before your paycheck stops.

4. Stress-Test Your Plan Before You Leave Work

The fourth thing to do in the final year before retirement is stress-test your plan.

This may be the most important step of all.

A retirement plan that only works when everything goes perfectly is not a strong plan. Markets don’t always cooperate. Inflation doesn’t always behave. Health expenses can rise. Tax laws can change. Family needs can appear unexpectedly. The first few years of retirement can be very different from what you imagined.

That’s why you need to test the plan before you retire.

Stress-testing means asking, “What happens if things don’t go exactly right?”

For example:

• What if the market drops 20% right after I retire?
• What if inflation stays higher than expected?
• What if I live to age 95?
• What if one spouse dies earlier than expected?
• What if healthcare costs are higher?
• What if we spend more in the first five years?
• What if Social Security is claimed earlier or later?
• What if we do Roth conversions?
• What if taxes rise in the future?
• What if we downsize later?
• What if we help adult children financially?
• What if long-term care is needed?

These questions are not meant to scare you. They’re meant to prepare you.

The worst time to discover a retirement problem is after you’ve already retired. The final year gives you a chance to make adjustments while you still have options.

For example, stress-testing may reveal that your plan is strong and you can retire confidently. That’s a great outcome. But it may also reveal that one or two decisions need attention.

Maybe you need a larger cash reserve.

Maybe you need to delay retirement by six months.

Maybe you need to reduce planned spending for the first few years.

Maybe you need to delay Social Security.

Maybe you need to adjust investment risk.

Maybe you need to rethink a large purchase.

Maybe you need to pay off debt before retiring.

Maybe you need to work part-time for a short period.

These aren’t failures. They’re adjustments. And adjustments are much easier before retirement than after retirement.

Stress-testing also helps reduce emotional decision-making. When the market drops, people often panic because they don’t know whether their plan can survive. But if you’ve already tested downturn scenarios, you can make decisions from a place of preparation instead of fear.

This matters because retirement creates a mental shift. When you’re working, a market downturn may feel uncomfortable. But when you’re retired and taking withdrawals, the same downturn can feel personal. It can feel like your lifestyle is under attack.

A stress-tested plan gives you a playbook.

You can decide in advance what you’ll do during a downturn, where income will come from, what spending can be adjusted, and when you’ll rebalance or review.

This is especially important in the first five years of retirement. Poor market returns early in retirement can have a larger impact because you’re withdrawing from the portfolio while it’s down. Having a strategy before that happens can make a big difference.

Stress-testing doesn’t guarantee success. Nothing does. But it helps you understand the strengths and weaknesses of your plan before your paycheck disappears.

That’s the kind of clarity retirees need.

• Test your plan against market downturns.
• Review inflation, longevity, taxes, and healthcare risks.
• Compare different Social Security claiming strategies.
• Build a plan for bad markets before they happen.
• Make adjustments while you still have time.

5. Prepare Emotionally and Practically for the Lifestyle Change

The fifth thing to do in the final year before retirement is prepare for the lifestyle change.

This part doesn’t get talked about enough.

Most people focus on the money, and the money is important. But retirement is not just a financial event. It’s a life transition.

For decades, work may have provided structure, identity, purpose, relationships, routine, and a reason to get up at a certain time. Even if you’re ready to leave your job, losing that structure can feel strange.

Some people thrive immediately. Others feel restless after the first few months. Some enjoy the freedom at first, then begin to wonder what they’re supposed to do with all their time.

That’s normal.

The final year before retirement is a good time to think about what you’re retiring to, not just what you’re retiring from.

Ask yourself:

• What will my normal week look like?
• How will I spend my mornings?
• What relationships do I want to strengthen?
• What hobbies do I want to pursue?
• Do I want to volunteer?
• Do I want to work part-time?
• Do I want to travel?
• Do I want to learn something new?
• How much time do I want with family?
• How will my spouse and I handle more time together?
• What gives me purpose outside of work?

These questions matter because money alone doesn’t create a meaningful retirement.

You could have a financially sound plan and still feel lost if you don’t have a vision for your time. On the other hand, you could have a modest retirement budget but feel very fulfilled because your days are intentional.

This is also a good time to test your retirement lifestyle before fully committing.

You might try living on your projected retirement income for six months. This can show whether your budget is realistic. It can also reveal spending categories you forgot about.

You might take longer vacations to see how travel fits your lifestyle. You might try new hobbies before retirement so you’re not starting from scratch. You might have honest conversations with your spouse about expectations.

This is especially important for couples. One spouse may imagine retirement as nonstop travel. The other may want quiet mornings, family time, and home projects. Neither is wrong, but unspoken expectations can create tension.

The final year is the time to talk through those things.

You should also think through your work exit plan.

Will you retire all at once or gradually? Will you consult part-time? Will you train a replacement? Will you take unused vacation? Will you coordinate your retirement date with bonuses, benefits, stock options, or pension rules?

The exact retirement date can matter. Retiring one month too early could affect benefits, pension calculations, healthcare coverage, or taxes. Don’t choose the date casually.

Finally, prepare for the emotional side of spending.

Many retirees struggle to shift from saving to spending. They’ve spent 30 or 40 years building the nest egg, and now they’re supposed to use it. That can feel uncomfortable.

This is another reason a clear income plan matters. When you know your spending has been tested, it becomes easier to enjoy the money you worked so hard to save.

Retirement should not feel like jumping off a cliff. It should feel like stepping into a plan.

• Think about what you’re retiring to, not just what you’re retiring from.
• Test your retirement budget before your final day.
• Discuss lifestyle expectations with your spouse.
• Choose your retirement date carefully.
• Build routines, purpose, and structure before retirement begins.

Conclusion

The final year before retirement is one of the most important planning windows of your life.

This is the year to move from vague confidence to real clarity. You want to know how much income you need, where that income will come from, how your investments will be used, how healthcare will work, what taxes may look like, and whether your plan can survive surprises.

The five smartest things to do are simple, but powerful:

Confirm your retirement income plan. Build your first-year paycheck strategy. Review healthcare and insurance. Stress-test the plan. Prepare emotionally and practically for the lifestyle change.

None of these steps require you to predict the future perfectly. They simply help you retire with your eyes open.

And that’s the point.

You don’t want to wake up six months into retirement wondering if you made the right decision. You want to enter retirement knowing you tested the major decisions, understood the trade-offs, and built a plan around your actual numbers.

If you’re within one year of retirement and want to know whether you’re truly ready, a Retirement Readiness Review can help. We’ll look at where you are today, define your goals and assumptions, test different strategies, and help you understand what needs to happen before your paycheck stops.

You don’t have to move your money. You don’t have to buy a product. You just need clarity before making one of the biggest financial transitions of your life.

FAQs

What is the most important thing to do one year before retirement?

The most important thing is to confirm your retirement income plan. Before you retire, you need to know how much income you’ll need, where it will come from, how withdrawals will work, and whether your savings can support your desired lifestyle.

Should I change my investments before I retire?

Maybe, but don’t make changes blindly. Your investment strategy should match your retirement income plan, cash needs, risk tolerance, and withdrawal strategy. The final year before retirement is a good time to review whether your portfolio is still appropriate.

How much cash should I have before retiring?

There’s no perfect number for everyone. Some retirees prefer several months of expenses in cash, while others want one to three years of planned withdrawals available in safer assets. The right amount depends on your income sources, comfort level, and investment strategy.