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By Donna Rosato, Susie Poppick, and Carla Fried
February 9, 2015

There’s a right way and a wrong way to transition into retirement. The wrong way: Put off thinking about it until you make a clean break from the working world. The right way: Start charting your course at least a decade in advance, and continue to shore up your finances in the final push to retirement. Then, when you’re one year out, make these key moves.

1. Dial back on stocks

At this point, you’ll want to start shifting away from equities, as the combined hit of withdrawals and a market downturn could compromise the longevity of your portfolio. For most people, this means that the max you should have in stocks will be just 40% to 50%.

2. Lock in some income

After health care costs, retirees’ biggest fear is running out of money, according to AARP. A lifetime immediate annuity is one solution worth looking into. Basically, you pony up a chunk of money in exchange for a monthly check for life. A 65-year-old man who invested $100,000 today would get about $550 a month.

You can’t access money you put in, however, so invest only enough to cover the shortfall in basic living costs left after other guaranteed income, such as Social Security or a pension, if you have one. Also, don’t go all in right away, since interest rates partly determine payouts. Invest in stages, and you’ll benefit if rates rise.

3. Make the call on your pension

Lucky enough to have a traditional pension? Find out what choices you have and how they affect your benefit. More than half of private industry workers with pensions can now opt to take their payout as a lump sum, up from 23% 15 years ago, reports the Labor Department. Don’t bite. Sure, you can invest the money, but it’d be tough to generate the same income the annuity version guarantees over a long retirement.

Another decision point: With the monthly check, you’ll have to choose whether to elect a survivor option that reduces your payouts but provides a 100%, 75%, or 50% benefit to your spouse should you die first. “You don’t get a second chance on this decision,” says New York elder-law attorney Ann-Margaret Carrozza. So project what would happen to your partner’s income without it. Also investigate whether you’d be better off taking the full benefit and using a portion to buy life insurance.

4. Stockpile cash

People tend to enter retirement with most of their money tied up in investments. Bad idea, says wealth planner Tim Golas. He suggests having enough cash to fund the first 12 months of living expenses, separate from your emergency fund. “This creates a safety valve, so you’re not at the whims of the market,” he says. Start funneling money into a savings account, cutting your 401(k) contribution to just capture the company match if needed. As a backstop, move a portion of an IRA into a short-term bond fund.

5. Mark your calendar for Medicare

Retiring around 65? You can sign up for Medicare—at medicare.gov—up to three months before your birthday month, and up to three months after. Enroll beforehand and coverage starts the first day of your birth month; after, and it’ll be delayed by up to six months. Retiring after 65? Sign up for Part A, which is free, pays for hospital care, and may cover gaps in your employer plan; for the other parts, you have eight months to join after leaving work.

Keep in mind that premiums increase 10% a year for each 12-month period you delay once your window closes. For help understanding your options, use the tools at mymedicare.gov.

6. Stress-test your spending

You’re likely to have a sense now of your fixed expenses for the next few years. So outline a spending plan and measure it against your nest egg to make sure you won’t blow through your savings. Start by filling in the budget worksheet on Fidelity’s Retirement Income Planner.

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As a rule, you can withdraw up to 4% of savings the first year, then adjust by inflation in subsequent years, and have a good shot at your money lasting 30 years. Inventory your assets and see whether 4%—along with Social Security, pensions, and part-time work—will cover your expenses. If not, you’ll need to trim costs.

Whatever budget you decide on, practice living on it now. You’ll reality-check your plan while there’s still room for error.

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