If you're set on 2024 being the year you leave the labor force for good, then December might be an exciting month. Not only are there holidays to celebrate, but you might also be embarking on the final countdown toward no longer having to work.
Ideally, if you're gearing up for a 2024 retirement, it means you've been planning for that for many years -- even decades. But there are still a few last-minute moves worth making this month so you can approach retirement with fewer financial worries.
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1. Assess your savings
You may be well aware that you have $1.2 million sitting in your 401(k) or IRA. But do you know how much income that will give you to work with next year? If you haven't run those numbers, do it now to make sure you're comfortable with the amount of income you're looking at.
Of course, to figure that out, you'll need to determine what withdrawal rate is right for you. For years, financial experts have suggested starting with 4% and adjusting withdrawals in future years for inflation.
There was a period of time when that advice was clawed back on the basis of 4% being too aggressive a withdrawal rate. But based on today's bond yields, it just might work for you. Or you may decide to be more conservative and stick with, say, 3.5%, just in case.
Either way, once you land on a withdrawal rate, apply it to your savings balance. If you have $1.2 million and you decide to go with 4%, you'll have an annual income of $48,000, or a monthly income of $4,000. That won't necessarily represent your total income, since you might be collecting Social Security, too. But it's at least a starting point.
2. Figure out what your Social Security benefit will be if you claim it next year
You're entitled to your full monthly Social Security benefit, based on your earnings history, once you reach full retirement age, or FRA. This is 66, 67, or somewhere in between, depending on your year of birth.
You're allowed to claim Social Security ahead of FRA, and the earliest age at which to file is 62. If you intend to sign up for Social Security in conjunction with retiring in 2024, figure out what that will mean for your monthly benefit. If it means filing early and results in a larger hit than anticipated, you may need to rethink your plans.
This doesn't mean you can't retire, though, so don't panic. Rather, you may opt to take a little extra money out of your savings next year to cover your living costs while leaving your Social Security benefit to grow.
3. Map out a retirement budget
It can be a little tricky to figure out what your retirement costs will look like before you actually get to that point. After all, you can't predict with accuracy what your utility bills will look like once you're home more often. And you may not yet have a handle on the cost of keeping yourself occupied in the absence of a job.
But try to at least set up a general budget that accounts for your largest expenses, like housing and healthcare, and then your variable expenses, like food and entertainment. That way, you can compare those numbers to the annual income you're anticipating and make sure everything lines up nicely.
If it doesn't, again, don't panic and immediately write off your retirement plans. But perhaps consider a compromise, like scaling back to part-time work in 2024 to boost your savings a bit if that seems like a necessary thing to do.
If you're aiming to retire in 2024, then December is a crucial month. Make the most of it so you're able to approach retirement with added confidence.
