Closing in on Retirement

You’ve worked so hard, but it’s about to pay off as you can almost see the finish line now! It’s time to figure out what’s important as you close in on retirement and use your savings and investments to create a paycheck. Here’s a list of what we think are the most important Do’s and Don’ts as you start to think about retirement.


Start to investigate your options

Surprisingly, you’ll have quite a few financial decisions as you approach retirement age. If you haven’t already, consider developing a financial plan to help understand the tradeoff of these decisions. Some of the most critical include:

  • Healthcare: Our financial software indicates that the average couple spends about $11,000 on healthcare premiums, deductibles, and out-of-pocket expenses annually (data from 2023). Medicare is our country’s health insurance program for people 65 or older. Make sure to sign up for Medicare during the six months starting three months before you turn 65. It is also possible to sign up for a supplemental insurance policy to help pay for or provide additional coverage.
  • Social Security: Social security is part of the retirement plan for almost every American worker. While it’s possible to collect benefits as early as age 62, our analysis indicates that in most cases, it’s best to delay benefits until age 70. Why? Your monthly check will increase about 7.5% each year you defer benefits, providing a stable (and larger) source of income later in life.
  • Asset Allocation: While being a business owner (through stocks) is a great way to build wealth; you don’t want the market to decline right when you retire. To help prepare, we generally recommend holding at least five years of retirement spending in cash, fixed income, or other less volatile assets. You may find your stock allocation declines as you head into retirement but then increases later in life as your spending declines and the money invested is more for your loved ones and charitable organizations.

Create your paycheck

Each year, you’ll have an opportunity to create income from your pension, social security benefits, investment accounts, real estate, part-time work, etc. Therefore, it’s essential to map out the most tax-effective way to draw a paycheck in retirement. Here are a few guidelines we find helpful:

  • Know your income tax bracket: When you’re in low Federal income tax brackets, look first to draw money from pre-tax (or tax-deferred) accounts. As your income tax bracket increases, you can be tax-efficient by withdrawing from accounts with long-term capital gains.
  • There may be some tax-efficient strategies available if you retire before collecting social security. For example, Roth conversions can help you reduce the lifetime amount you pay in taxes. We believe Roth accounts are one of the best places to build wealth. Unlike traditional IRA accounts, Roth accounts grow tax-free and if you’re over 59.5, you can make withdrawals tax-free too.


Don't buy products you don't need

Just like you avoid spending on frivolous things, stay away from financial “products” that you don’t need—things like annuities or universal/whole life policies. You’ll often find you’re paying too much and can build those benefits yourself through fixed-term life insurance and investing separately.

Don't move to cash

One of the biggest challenges is sticking with your financial plan when things get tough. Your account balances might be multiples of your annual income, so 10% or 20% declines hurt this close to retirement. Think ahead about how you’d react and adjust your allocation before the market declines.

Jacobson & Schmitt Advisors, LLC (“JSA”) is a registered investment advisor.  Advisory services are only offered to clients or prospective clients where JSA and its representatives are properly licensed and or exempt from licensure.  The information provided is for educational and informational purposes only and does not constitute investment advice, and it should be be relied upon as such.  It should not be considered a solicitation to buy or an offer to sell a security.