Steps in year before retiring

Your Money

February 04, 2007|By Janet Kidd Stewart | Janet Kidd Stewart,Chicago Tribune

We spend years (we hope) saving for retirement and years (again, we hope) managing the nest egg while in retirement.

But what about that pivotal year when we hang it up? Miss a deadline or miscalculate a 401(k) payout and you could be in real trouble.

So here's a guide to getting the proverbial ducks in a row in that final 12 months leading up to quitting time:

Make sure you can do this.

Many workers start dreaming about quitting long before their bank accounts would justify doing so.

"They get it in their head that they're going to retire by a certain age, and it's hard to shake," said Patricia Wiley, a New York-based principal with Ernst & Young who co-wrote the firm's retirement planning guide. "Sometimes it makes them pull the trigger earlier than they should."

Before dialing up human resources and announcing your departure date, be sure you're aware of the policies in your company's retirement and benefits plans, Wiley said.

Make sure you're fully vested in your 401(k) or the amount you can withdraw will be much lower than the numbers on your statement. And what about medical benefits? Some companies, for example, might require at least 10 years of service before paying out retiree medical benefits, Wiley said.

Now might be a time when even diehard do-it-yourself investors want to invest in some time with a financial planner - if only to play devil's advocate to your retirement income assumptions. Two Web sites that can help locate a planner are and

Have a game plan.

If you think you have enough to retire, your next step is figuring out how you'll tap that money.

"Annuities get a bad rap, but partial annuitization is being considered more and more," said Pamela Hess, director of retirement research at Hewitt Associates.

Set aside those numbers you've been plugging into retirement income calculators on the Internet and think about what you'll spend next year.

Have some big-ticket items on the list, like a family wedding or a retirement trip? And if you're retiring early, don't forget health-care benefits if your employer doesn't offer them to bridge the gap until Medicare kicks in.

Annuities are one way to trade a lump sum for a guaranteed income, but there might be better options depending on your situation, including investing your money in low-cost stock and bond mutual funds and taking regular withdrawals.

Volumes of information are available on the Internet and your local library on the various types of annuities, but one piece of advice runs through them all: If you decide to buy, compare deals from several sources before signing. One place to shop:

Next, decide when you should start collecting Social Security. Fears about the solvency of the program lead some people to take benefits early, when they'd really be better off waiting, experts said.

If you'll be working part time during retirement, your earnings above certain limits might reduce your Social Security check.

Go to the Social Security Web site ( for information and calculators that will help you determine the best time to start taking benefits. And remember, full retirement age for Social Security purposes isn't necessarily your 65th birthday: It's a sliding scale up to 67 for those born in 1960 or later.

The nitty-gritty.

Orchestrating your exit from work will vary depending on your employer's requirements and culture, but a few lessons hold at most every workplace.

For example, make sure you know whether your job is covered by a special employment agreement, because many require a specific notification period when you leave the company, said Edgar Adkins, a compensation partner with Grant Thornton's Washington office.

Notifying your firm sooner rather than later usually is a good thing, anyway, Adkins said, because it gives both sides time to come up with possible part-time work.

The home stretch.

When you're down to three to six months, contact old employers where you might have vested pension plans, Adkins said. If a former employer has lost track of you, you should be able to track those benefits through the Social Security Administration, he said.

If you're retiring at 65, be sure to sign up for Medicare about three months before your birthday, even if you don't plan to start taking Social Security. You'll pay a penalty for life if you fail to sign up for Medicare prescription drug coverage in the year you turn 65 (exceptions include some workers who are still covered by a company insurance plan and low-income seniors).

For more timetables and suggestions, visit the Social Security site or AARP (

Have a retirement question? Write to yourmoney@tribune. com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611. If your letter is selected we may include you and your question in a future column.

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