The Biggest Financial Decisions You’ll Make Before Retirement
A retirement plan involves more than investments alone.
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about how the different pieces of your retirement plan can work together.
Preparing for retirement means making several important financial decisions that can affect how your income, taxes, healthcare and savings work together for years to come. From deciding when to claim Social Security and how to withdraw from retirement accounts to planning for Medicare, long-term care, investment risk and your estate, timing and coordination matter. Explore some of the biggest financial decisions to make before retirement and how a comprehensive retirement plan can help bring the different pieces of your financial life together.
Key Takeaways:
- Retirement is built from several major decisions, not one. Social Security timing, income strategy, healthcare coverage, and your estate plan shape each other, so they work best when planned together.
- Some choices are difficult to reverse. Claiming Social Security early or missing your Medicare enrollment window can potentially lock in a lower benefit or a lasting penalty. Depending on your circumstances and existing coverage, delaying enrollment may result in late-enrollment penalties or a gap in coverage.
- Sequencing matters as much as the decisions themselves. Getting the order right- healthcare before you leave a job, income strategy before your budget- can reduce risk during the transition.
The years leading up to retirement tend to bring a wave of decisions at once, and few are as simple as picking a date and stopping work. Your Social Security timing, withdrawal strategy, healthcare coverage, and estate plan all influence one another, so getting each one right on its own isn’t quite the same as getting the full picture right.
Working through these decisions early, and in a sensible order, gives you room to adjust before the stakes get higher. Here’s a look at the choices that tend to carry the most weight on the way into retirement.
Decide When and How to Claim Social Security
Your Social Security claiming age is one of the more consequential decisions you’ll make, largely because it’s difficult to undo once benefits begin. Claiming before your full retirement age permanently reduces your monthly benefit, while delaying past it, up to age 70, increases it.1
No single “right” age works for everyone. Your health, other income sources, whether you’re still working, and whether a spouse depends on your benefit can all shift the calculation.
For married couples, this decision often needs to account for survivor benefits too. The higher earner’s claiming age can determine what the surviving spouse receives for life, making this less of an individual decision and more of a household one.
Build a Retirement Income Strategy Around Your Accounts
Once Social Security is roughly mapped out, the next decision is how the rest of your retirement paycheck gets built, meaning which accounts to draw from, in what order, and how much income should be locked in versus flexible.
That shift is what comprehensive planning is built around. Once income has to come out, sequence, taxes, and which account you tap start driving the result, and those are questions of coordination, well beyond raw performance.
Decide How and When to Draw Down Your Accounts
Traditional, Roth, and taxable brokerage accounts are all taxed differently, so the order you withdraw from them can affect how much of your money you actually keep. Required minimum distributions add another layer, since the IRS generally requires withdrawals from most retirement accounts to begin at a set age.2
A withdrawal strategy built around these differences, rather than convenience, can help manage your tax bill throughout retirement, rather than in any single year.
Weigh How Much Guaranteed Income You Want
Some retirees prefer a larger share of monthly income locked in through Social Security, a pension, or a fixed annuity, while others prefer keeping savings flexible and market-based. Fixed insurance products like annuities can offer steady, reliable payments, but they also carry fees, surrender charges, and holding periods that vary by insurer.
Neither approach is inherently better. The right balance depends on how much month-to-month certainty you want versus how much growth potential you’re willing to trade for it.
Time Your Medicare and Healthcare Decisions
Healthcare coverage is one of the more time-sensitive decisions here. Your Initial Enrollment Period for Medicare generally starts three months before you turn 65 and ends three months after, and missing it can mean a lasting late-enrollment penalty on your premiums.3
If you’re planning to retire before 65, that coverage gap needs its own plan, whether through a spouse’s employer coverage, COBRA, or a marketplace plan. Coordinating your retirement date with your healthcare coverage helps avoid a costly lapse.
Plan for Long-Term Care and Unexpected Costs
Healthcare coverage handles routine costs, but it’s worth separately planning for expenses that are harder to predict. Many retirees eventually need some form of long-term care, and nearly 70%of people turning 65 today are expected to need some type of long-term care assistance during their remaining years.4. Here’s what that planning tends to involve:
- Long-term care insurance: A long-term care insurance policy may help offset certain eligible extended-care costs, subject to the policy's terms, conditions, limitations, and benefit amounts.,
- Cash reserves:Keeping savings in accessible, stable accounts helps you handle a health event or major repair without selling investments at an inconvenient time.
- Health insurance before Medicare: If you're retiring early, budgeting for private coverage before 65 deserves its own line item.
Reassess Your Investment Risk and Portfolio Strategy
As retirement gets closer, your portfolio’s role tends to shift from pure growth to a mix of growth and income. A portfolio built for someone twenty years out usually isn’t the right fit for someone about to start drawing from it.
Part of this shift means considering how an early-retirement market downturn could affect withdrawals, since selling after a decline can lock in losses that are harder to recover from. Rebalancing with that risk in mind, before markets turn volatile, tends to leave more room to adjust.
Put Your Estate Plan in Place
An estate plan is less about asset size and more about documenting your wishes and coordinating your accounts with them. A few pieces tend to matter most:
- A will: Provides instructions for the distribution of certain assets at death and generally names an executor to administer the estate.
- Beneficiary designations: Retirement accounts and life insurance pass directly to named beneficiaries, often regardless of what your will says, so these need their own review.
- Power of attorney: Names someone to make financial decisions on your behalf if you become unable to.
- Healthcare directive: Documents your medical wishes and names someone to make healthcare decisions if you can't communicate them.
- Trusts: Depending on your goals, a trust may offer more control over how and when assets are distributed than a will alone.
Biggest Pre-Retirement Financial Decisions FAQs
1. What’s the biggest financial decision to make before retiring?
No single decision outweighs the rest. Social Security timing, income strategy, healthcare coverage, and your estate plan all carry real weight, and the strongest plans coordinate them.
2. When should I start planning these decisions?
Earlier is generally better, especially for decisions like Social Security and Medicare that are difficult to reverse. Many people begin five to ten years before their expected retirement date.
3. Should I claim Social Security as early as possible?
Not necessarily. Claiming early permanently reduces your benefit, so the right age depends on your health, other income, and whether a spouse relies on your benefit.
4. What happens if I miss my Medicare enrollment window?
You may face a late-enrollment penalty added to your premiums and, in some cases, a coverage gap, which is why coordinating your retirement date with Medicare timing matters.
5. Do I need long-term care insurance?
It depends on your health, family history, and how much savings you’re comfortable risking for a potential care need, and it’s worth weighing against your overall income strategy.
6. How often should I revisit my estate plan?
Generally, after any major life change, such as a marriage, divorce, birth, or death in the family, and periodically otherwise, so beneficiary designations and documents still reflect your wishes.
How Our Team Can Help You Navigate These Decisions
Retirement rarely comes down to one decision. It’s Social Security timing that works alongside your withdrawal strategy, healthcare coverage that lines up with your retirement date, and your estate plan that reflects what you’ve actually built.
Our team can help you work through these decisions together, rather than one at a time, so your income strategy, protection planning, and legacy goals all pull in the same direction, and help you understand which pieces are time-sensitive.
If you’d like help thinking through the decisions ahead of retirement, we’d welcome the chance to with our team.
Resources:
- Benefits Planner: Retirement Age and Benefit Reduction
- Required Minimum Distributions
- When Does Medicare Coverage Start
Disclaimer:
Goldstone Financial Group, LLC (“GFG”) is a registered investment advisor with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or qualification. This material is provided for informational purposes only. Opinions expressed herein are solely those of GFG. None of the information presented in this material is intended to offer personalized investment advice and does not constitute an offer to sell or solicit any offer to buy a security or any insurance product and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. GFG does not provide legal or tax advice. Tax and estate planning information is general in nature and should not be construed as legal or tax advice. Clients should consult with qualified legal and tax professionals regarding their individual circumstances
Any references to protection benefits or steady and reliable income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured.