Your Essential 2025 Retirement Checklist: Key Steps to Take Now

With 2025 just around the corner, the retirement you’ve been working toward for decades is finally within reach. This is an exciting time, but the final year of preparation is critical. You’re likely wondering if you’ve checked all the boxes. This guide provides a clear look at what you should be thinking about right now to ensure a smooth and confident transition into your next chapter.

The Final Financial Countdown

Your finances are the foundation of your retirement. In this last stretch, the focus shifts from accumulation to preservation and planning for distribution. It’s time to get specific and make sure your numbers are solid.

Review and Rebalance Your Portfolio

As you approach your retirement date, your tolerance for risk should naturally decrease. A significant market downturn right before you stop working could have a major impact on your long-term plans. Now is the time to work with a financial advisor to gradually shift your portfolio’s asset allocation. This typically means moving from a growth-oriented strategy to one focused on capital preservation and income generation.

Reduce Equity Exposure: Consider reducing your holdings in aggressive growth stocks.
Increase Fixed Income: Increase your allocation to less volatile assets like bonds and bond funds. For example, a common pre-retirement portfolio might be a ⁶⁰⁄₄₀ or even ⁵⁰⁄₅₀ split between stocks and bonds.
Consider Cash Reserves: Ensure you have at least one to two years of living expenses in highly liquid, safe accounts like a high-yield savings account or money market fund. This cash buffer can prevent you from having to sell investments during a market dip to cover your bills.

Maximize Your Final Contributions

If you are still working, make the most of your tax-advantaged retirement accounts. For 2024, the contribution limit for a 401(k) is $23,000. If you are age 50 or over, you can contribute an additional $7,500 as a “catch-up” contribution, for a total of $30,500. Squeezing every last dollar into these accounts can make a meaningful difference.

Create a Detailed Retirement Budget

This isn’t a rough estimate. This is a line-by-line plan for your post-work income and expenses.

List Your Income Sources: This includes Social Security, pensions, and planned withdrawals from your retirement accounts (like your 401(k) or IRA).
Track Your Current Spending: For a few months, track every dollar you spend to get a realistic picture of your lifestyle.
Project Future Expenses: Some costs, like commuting and work clothes, will disappear. Others, like healthcare and travel, may increase. Be honest about your plans and factor in inflation, which has been a significant factor in recent years.

Navigating Social Security and Medicare

These two government programs are cornerstones of American retirement, but the rules can be complex. Making the right decisions for your situation is vital.

When you claim Social Security has a permanent effect on your monthly benefit amount. You can start as early as age 62, but your benefit will be permanently reduced. If you wait until your Full Retirement Age (FRA), which is typically 66 or 67 depending on your birth year, you receive your full benefit. If you delay until age 70, your benefit increases by about 8% for each year you wait past your FRA.

For a 2025 retirement, it’s also worth watching the Cost-of-Living Adjustment (COLA). While the official 2025 COLA won’t be announced until October 2024, early projections from organizations like The Senior Citizens League estimate it could be around 2.6% to 3.2%. This adjustment will be applied to benefits starting in January 2025.

Understanding Your Medicare Enrollment

Signing up for Medicare on time is crucial to avoid lifelong penalties. Your Initial Enrollment Period (IEP) is a seven-month window that begins three months before the month you turn 65 and ends three months after.

Part A (Hospital Insurance): This is typically premium-free if you or your spouse paid Medicare taxes for at least 10 years.
Part B (Medical Insurance): This covers doctor visits and outpatient care. It has a monthly premium.
Part D (Prescription Drugs): This is optional coverage offered by private companies.
Medicare Supplement (Medigap) or Medicare Advantage (Part C): You will need to choose between these two options to help cover costs that Original Medicare (Parts A and B) doesn’t. Medigap plans help pay for out-of-pocket costs, while Medicare Advantage plans are all-in-one alternatives offered by private insurers.

Planning for Healthcare and Long-Term Care

Healthcare is one of the largest and most unpredictable expenses in retirement. A solid plan is not an option; it’s a necessity. According to the 2023 Fidelity Retiree Health Care Cost Estimate, an average 65-year-old couple retiring this year may need approximately $315,000 saved (after taxes) to cover healthcare expenses in retirement.

Beyond Medicare, consider the potential need for long-term care, which includes services like home health aides or nursing home stays. Medicare does not typically cover these long-term costs. Your options include:

Long-Term Care Insurance: A policy designed specifically to cover these costs.
Self-Funding: Earmarking a portion of your savings to cover potential care.
Hybrid Life Insurance Policies: Some policies combine a life insurance benefit with a long-term care rider.

The Lifestyle and Practical Transition

Retirement is more than a financial event; it’s a major life transition. Thinking about the practical and personal aspects now will make the change much smoother.

Create a Withdrawal Strategy: How will you turn your nest egg into a steady paycheck? The “4% rule” is a common guideline, but you might also consider a bucketing strategy or purchasing an annuity. Discuss the best approach for you with a professional.
Decide on Housing: Will you stay in your current home (age in place), downsize to something smaller and more manageable, or relocate to a new city or state with a lower cost of living or better climate?
Plan Your Time: Think about how you want to spend your days. This could include traveling, volunteering for a cause you care about, taking classes, starting a new hobby, or even working part-time for enjoyment. Having a sense of purpose is key to a happy retirement.
Update Your Estate Plan: Ensure your will, trusts, power of attorney, and healthcare directives are up to date and reflect your current wishes.

Frequently Asked Questions

What is the Social Security earnings test for 2025? If you claim Social Security before your Full Retirement Age and continue to work, some of your benefits may be temporarily withheld if your earnings exceed a certain limit. The Social Security Administration announces the new limits each year. For 2024, the limit is $22,320. If you earn more than that, $1 in benefits is withheld for every $2 you earn above the limit.

How should my investment strategy change in the year before I retire? The primary goal should shift from growth to preservation. This generally means reducing your exposure to volatile assets like individual stocks and increasing your allocation to more stable investments like high-quality bonds, bond funds, and cash equivalents. The aim is to protect the capital you’ve accumulated from a sudden market downturn.

Can I roll my 401(k) into an IRA when I retire in 2025? Yes, this is a very common strategy. Rolling your 401(k) into an Individual Retirement Account (IRA) can often give you a wider range of investment choices, potentially lower fees, and more flexibility with withdrawals. It’s a good idea to initiate this process with a financial institution a month or two before your official retirement date.