Retiring in 2025? 5 key financial moves to make before the end of 2024

Most people spend 40 or more years in the workforce before they retire, and even then, it’s not always easy to save what you need. Americans today estimate they will need $1.46 million to retire comfortably, according to a Northwestern Mutual survey. While expectations don’t always line up with reality, many people will probably need that much or more to cover all their expenses.

Retirement planning typically takes place over decades, leaving plenty of time for your goals to change as well. Checking in with yourself throughout the planning process can keep you on track, but you also need to take a hard look at your finances even before you leave the workforce.

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If you’re planning your retirement party for 2025, take a moment to review the following five things to ensure you don’t get caught off guard by the financial transition.

1. Decide when to apply for Social Security if you haven’t already

Social Security checks are a critical source of retirement income for many seniors, so you need to be strategic when applying for them. Everyone who has worked long enough to earn 40 credits — where one credit equals $1,730 in earnings and you can earn a maximum of four credits per year — can apply for Social Security as early as age 62 .

However, you must wait until full retirement age (FRA) to claim the full benefit you have earned based on your work history. FRA is based on your year of birth and you can find yours in the table below:

Data source: Social Security Administration.

Claiming under FRA lowers your checks. You lose:

• 5/9 of 1% per month for up to 36 months of early claim
• 5/12 of 1% per month for each additional month of early claim beyond 36 months

This results in a 25% decrease for 62-year-old claimants with an FRA of 66 and a 30% decrease for those with an FRA of 67. This decrease is usually permanent, although those who work and claim benefits at the same time may see their checks. rise to their FRA.

You can also defer Social Security beyond your FRA, and your checks will grow by 2/3 of 1% per month. This ends when you qualify for the maximum benefit at age 70.

Despite the advantages of delaying benefits, it’s not always your best move. Those with serious health problems and those who cannot afford to cover their living expenses without social security benefit from an early application.

You have to make the right call for you based on your life expectancy and financial situation. Married couples also need to consider how their claiming age may affect their partner’s ability to claim spousal benefits. If you’ve already chosen a claim age, review it now to make sure you’re still comfortable with it.

If you haven’t already done so, create a Social Security account and use the benefits estimator to get a general idea of ​​your Social Security checks at each claim age between 62 and 70. Multiply the possible claim ages by the number of months you have. expect to receive benefits to estimate your lifetime benefit. For example, a $2,000 monthly benefit claimed for 20 years — 240 months — gives you a lifetime benefit of $480,000. Choose the age that gives you the largest lifetime benefit, unless health or financial conditions prohibit it.

Once you know how much your monthly Social Security benefits will be, you can determine how much of your expenses you will need to cover from other sources.

2. Determine if you have adequate savings

You may have had a retirement savings goal in mind for some time, but it may no longer be appropriate for your needs. You may have discovered in the previous step that Social Security checks will not go as far as expected. Or you may find that the cost of living has risen faster than expected in the area where you plan to retire.

Changes like these require you to recalculate how much you need to save for retirement. It is important to do this before you retire. Otherwise, you risk outliving your savings.

If you find that you don’t have enough savings, you may need to stay in the workforce a little longer. Or you may need to rethink how much you plan to spend annually.

3. Decide on a withdrawal strategy

Knowing how much you can safely withdraw from your retirement accounts each year helps you avoid outliving your savings. Everyone’s approach to this is different.

Some people prefer to follow the 4% rule. This involves withdrawing 4% of your retirement savings in the first year of retirement and adjusting this amount for inflation each year thereafter. It should help your savings last 30 years, but that’s not always the case. It’s also not the most flexible option.

Those who plan to spend more in the early years of retirement — perhaps to travel or make big-ticket purchases — may find it makes more sense to come up with a customized retirement strategy that takes those plans into account .

4. Schedule check-ins

Retirement is a big transition, and there will likely be some bumps in the road. It’s especially important to review your finances periodically throughout retirement, especially in the first year or two, to see how your expected expenses line up with your actual expenses.

You should do this at least once or twice a year. You can also check in more often if you want. Schedule these dates in your calendar so you don’t forget.

5. Have a backup plan

If all goes wrong at check-ins, you need a plan to get things back on track. This could involve cutting back on spending or postponing certain purchases. In some cases, it may require more extreme measures, such as returning to work for a short period of time.

Think about what you’re willing to do if you spend your savings faster than expected, and be prepared to act quickly if necessary. The earlier you catch these problems, the easier they are to fix.