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Commentary: Retiring next year? Do these 3 things first

After decades of toiling away, you've circled the date on your calendar to mark your last day of work, and that day is now nearly upon you. It's a big moment when you've pinned down your retirement date, and it's understandable if you feel some a...

Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings.
Bruce Helmer and Peg Webb, financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on KLKS 100.1 FM on Sunday mornings.

After decades of toiling away, you've circled the date on your calendar to mark your last day of work, and that day is now nearly upon you. It's a big moment when you've pinned down your retirement date, and it's understandable if you feel some apprehension as the day approaches.

Fortunately, there are things you can do in the months leading up to retirement to help you feel more confident when you transition into retirement.

Conduct a Retirement Cash Flow Analysis

To help you get a better sense as to whether you have saved enough to fund your desired lifestyle in retirement, conduct a cash flow analysis that compares your projected income

with your annual expenses.

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Your Income: We've traditionally looked at retirement income as a three-legged stool consisting of your savings, your Social Security benefits and your pension. More and more, we're seeing the pension leg of the stool disappearing. Some retirees opt to supplement their retirement income with part-time work, while others feel comfortable relying solely on savings and Social Security.

Your Expenses: The traditional rule of thumb is that you'll spend about 70 percent of your total pre-retirement spending in retirement. And that may be true for you-you may be dreaming of leading a retirement where you stay close to home and take up inexpensive hobbies. Others seek to engage in activities that they didn't have the time and/or the finances to do while working, which can cause a spike in your outlays. Reflecting on your retirement goals will help you come up with a reasonably accurate estimation.

Estimating both your annual income and expenses will help you understand whether you can produce enough income to cover your desired retirement lifestyle. If not, you may either need to plan on working part-time or consider delaying your retirement for a few years.

Submit a Retirement Tax Return

The idea of paying taxes in retirement isn't something that may come as surprise to you, but in our experience, the amount of taxes you'll be paying in retirement oftentimes does. If you have a taxable investment account, such as a brokerage account, you'll be paying taxes on capital gains, dividends and interest on an annual basis. If you'll be receiving Social Security, it's highly likely some portion of those benefits will be included in your taxable income.

If you have the bulk of your savings in a tax-deferred vehicle, you'll be paying taxes on every dollar you withdraw from that bucket. And once your required minimum distributions kick in at age 70.5, the amount you have to withdraw from those tax-deferred sources may increase, thereby causing a subsequent increase in your taxes.

If your taxable income is likely to be higher during your final working year than it will be during your first year of retirement, then you may want to accelerate some planned tax deductions this year to receive a bigger bang from those deductions.

Have a Plan for Your Old 401k

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If you had a 401(k) with your old employer, you have essentially two options for managing it: You can keep it where it is or you can roll it into an IRA. A reason to consider rolling old 401(k) plans into an IRA because it gives you complete control and it offers significantly more options to invest within.

That said, there are some reasons to consider keeping your 401(k) where it is. For example, if you're retiring between ages 55-58, you may be able to continue to make penalty-free withdrawals if you keep your 401k where it is. If you roll it immediately into an IRA, you may not be able to make penalty-free withdrawals until age 59.5. You should weigh the pros and cons of rolling your 401k over into an IRA before making a final decision.

No one knows for sure if they're fully ready for retirement until they take the plunge.

Planning ahead can help ensure your retirement is as excellent as you had dreamed it would be when you make that leap.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult your financial and/or tax adviser about your specific situation.

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com . Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.

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