In this report

Retirement planning time clock

Here's when to tackle important financial decisions

You can buy a "Retirement Countdown Clock" online for about $30. You program the kitschy timepiece to count down the number of days, minutes, and seconds until your desired retirement date. It's cute, but to be truly useful it needs an additional feature: an alarm that goes off periodically to signal you that it's time to take care of preretirement business.

Until someone invents a clock that helps you with your actual planning, you can use our timetable to keep your retirement plans on track.

15 years before retirement

Develop a financial plan

It's never too early to start dreaming. And, of course, the earlier you actually start saving for your retirement, the easier it will be to amass the amount you'll need to fund your desired lifestyle. If you want to retire at 60, for example, you should get serious about planning by the time you hit your mid-40s.

A financial planner or the right software can help you figure out how much money you'll probably need. T. Rowe Price offers a Retirement Income Calculator on its Web site. (Go to, click on "Individual Investors," and again on "Retirement." The link for the calculator is under Tools & Resources.) Other fund companies also have useful tools. Don't forget to monitor your progress as the years go by to make sure that you're saving enough.

Get help from your employer

The Society for Human Resource Management reports that 35 percent of companies offer retirement planning services to their workers. So take advantage of any perks that your employer offers, like educational seminars or free financial-planning software such as Financial Engines.

3 to 5 years before retirement

Pay off debt

When you're retired, your biggest worry should be whether the fish are biting. So retire any high-interest credit-card debt before you retire. You also might want to retire your mortgage, even if your tax-deductible monthly payment doesn't bust your budget. You can do this before you stop working by making an additional payment toward your principal each month, as long as your loan agreement allows prepayment without penalty.

Pick the right retirement date

You don't want to retire on Nov. 8 if the matching contributions that your employer makes to your 401(k) plan vest on Nov. 9.

The same advice applies to your defined-benefit pension plan, if you have one. Your employer has a formula for pension benefits based on your length of service, salary, and age at retirement. Ask your benefits department how much you'll collect if you retire at the normal retirement age, typically 65, or quit work earlier. Some pension plan administrators have Web sites that will help you calculate how much you'll collect under various scenarios.

Track down pensions

If you're highly organized, you may already have file folders covering any pension you're entitled to from former employers. In them should be copies of the Summary Plan Descriptions that detail who gets benefits under that plan. It will be simple to get in touch with plan administrators when you're ready to start collecting benefits.

If you don't have a file drawer in your house stuffed with those documents, don't worry; you can hunt down missing pensions. A good place to start is with "Finding a Lost Pension," a booklet published by the Pension Action Center and the federal Pension Benefit Guaranty Corp. To read it online, go to and click on "Publications." You can also search for lost pensions at, a service of the Pension Rights Center, a consumer advocacy group. And you can also use the site to find a counselor who can help you resolve pension disputes with former employers.

1 year before retirement

Set up an income stream

When you're retired, you don't want to cash in a CD or sell shares of stock whenever you get a bill from Macy's or your landscaper. Instead, plan to draw cash from your assets monthly or annually. Keep enough in a money-market account to cover your expenses for the next three to six months.

Use up your benefits

What's worse than a root canal? Undergoing that pricey procedure after you're retired and no longer have employer-sponsored dental insurance. Medicare generally doesn't cover dental work, nor does it pay for eyeglasses or contact lenses. So if your employer offers dental and vision insurance, use your benefits before you lose them. And don't forget to take all of the vacation and personal days that you've accumulated as either time off or cash. You may be able to enjoy a paid vacation before you begin your retirement.

6 months before retirement

Decide how to take your pension

Typically you can elect to collect it either as a lump sum or an annuity. If you're single and have a medical condition that's likely to cut your life short, you might decide that a lump sum makes more sense than a monthly check for life.

The decision for most of us isn't that clear-cut. For instance, you may feel that you can score higher returns and outpace inflation by investing a lump sum on your own. (Most corporations don't adjust pension payouts for inflation.) But if you happen to entrust your nest egg to the next Bernard Madoff, you could end up with nothing. Or you may be inclined to take a lump sum so you can leave a legacy to your children. That's a worthy goal, but not if it leaves you feeling pinched. "Think about what you and your spouse need, not about the people who you plan to leave your money to eventually," says Rebecca Davis, an attorney for the Pension Rights Center.

But taking a lump sum might make sense if you have concerns that your employer may go bankrupt and renege on its pension promises. Find out if the Pension Benefit Guaranty Corp. insures your pension and whether your monthly benefit exceeds its payment cap. Your plan's Summary Plan Description will tell you if your benefits are covered by the PBGC. The maximum amount you're guaranteed is based in part on your age when the plan terminates, whether you take your pension before age 65, and if your pension includes payouts to a beneficiary who survives you. Currently, the maximum is $4,500 a month for 65-year-olds and $2,025 for 55-year-olds. For the amount that applies to you, go to, click on "What PBGC guarantees," and then on "Maximum monthly guarantee tables."

Whichever way you're leaning, be sure to compare the monthly payout with the amount you could safely withdraw from your portfolio if you took a lump sum and invested it. To guard against outliving your money, financial advisers generally recommend withdrawing no more than 4 percent of your assets during your first year of retirement, and then increasing that amount by about 3 percent annually for inflation. (In other words, a withdrawal of $10,000 in Year 1 would increase to $10,300 in Year 2, and so on.)

You should find out if you'll come out ahead if you take a lump sum and use it to buy an immediate annuity from an insurance company. John F. Hochschwender, a senior vice president at RTD Financial Advisors in Philadelphia, recommends two low-cost sources: the Berkshire Hathaway Group and the Vanguard Group. If you want to compare fixed annuities from other companies, you can check out

Consider your spouse's needs

If you opt to collect your pension in an annuity, you need to choose between a single-life and a joint-and-survivor payout. A single-life annuity will give you the most money each month, but the checks will stop when you die. Under federal law, you must choose a joint-and-survivor annuity unless your spouse signs away his or her right to it. Steven B. Enright, a certified financial planner with Enright, Mollin, Cascio and Ramusevic in Elmhurst, N.Y., does not recommend single-life annuities. "No matter how healthy you are, you can drop dead the next day and all would be lost," he says.

Be wary if an insurance agent claims that you can choose a single-life annuity and still provide generously for your surviving spouse. Such a pitch is generally for a so-called pension maximization plan in which you choose a single-life annuity and buy an insurance policy on your life. If you die first, your surviving spouse then invests the insurance proceeds for income.

In theory, the net income you and your spouse receive will be greater than the amount you would have collected with a joint-and-survivor pension, even accounting for the insurance premiums you'll have to pay with after-tax dollars. Real life is often messier, however. You might not have enough money to buy an insurance policy that's large enough to make the plan work, especially if you have health issues that would require you to pay a high premium for coverage. Or you might encounter financial difficulties after you retire and be forced to let your insurance policy lapse. Enright has run the numbers on various pension maximization proposals over the years. His conclusion: "It could work out, but the odds are against it."

3 months before retirement

Sign up for Social Security

You can start collecting at age 62, but you'll get a bigger check if you hold off. Your payout will increase for each month between 62 and 70 that you delay taking benefits. For example, you might collect $1,064 a month if you retire at 62, $1,543 if you call it quits at your full retirement age of 67, or $1,924 if you wait until 70. You can keep track of the benefits you've earned by checking the Social Security Earnings Statement sent to you each year. You can also run different reirement-age plans by going to and clicking on "Estimate Your Retirement Benefits."

Some financial experts advise clients to delay benefits as long as they can to maximize their payout. But Robert Steffen, a certified financial planner in Bloomington, Minn., disagrees. "For financially successful people, Social Security is gravy," he says. "So go ahead and take it early, when you're younger and more likely to spend it."

Whatever you do, apply for benefits about four months before the date when you want to start receiving checks. You can apply online, by phone at 800-772-1213, or make an appointment to apply in person at your local Social Security office.

Enroll in Medicare

If you're already collecting Social Security benefits, Uncle Sam will get in touch with you a few months before you become eligible for Medicare at age 65. If you're not yet on Social Security, you can sign up for Medicare by calling the Social Security Administration about three months before your 65th birthday. You'll get Medicare Parts A (hospital coverage) and B (for doctor visits and outpatient care) automatically, but you can reject Part B if you don't want to pay a premium for it. Part D (drug coverage) is optional. For help deciding whether you should buy it, go to, the Web site of the Medicare Rights Center, a nonprofit consumer organization. Click on "Medicare Answers."

You may also want to shop for a Medigap policy to plug the holes in Medicare coverage if you won't get retiree health insurance from your former employer. Do this during your six-month open-enrollment period, which begins when you sign up for Medicare Part B. During that time, insurers can't deny you coverage or charge you higher premiums because of any health problems you have.

If you plan to retire before 65 without retiree health benefits, you'll have to find affordable coverage before you call it quits. For options, see "How to find affordable health coverage".

Your last day at work

Turn off the alarm on your "Retirement Countdown Clock." You're well-prepared to start living the next phase of your life.

How to find affordable health coverage

If you retire before you're eligible for Medicare, your employer doesn't offer retiree health insurance, and your spouse is retired or working for a company that doesn't provide coverage, you're basically on your own. You have options, but they'll cost you.

First, consider continuing your employer-sponsored group coverage under COBRA. That law requires companies that employ 20 or more people to allow workers who leave the company or lose their jobs to continue group coverage for themselves and their families for up to 18 months. You'll have to pay the full cost of coverage, plus a 2 percent administrative fee.

You can use COBRA until age 65, when you're eligible for Medicare. Or you can hold on to it until you buy an individual policy. If you keep your COBRA coverage for at least 18 months (with no break in coverage of 63 days or more), you'll be eligible to get benefits under the Health Insurance Portability and Accountability Act. That law gives you the right to buy an individual health insurance policy that doesn't exclude or limit coverage for any pre-existing medical conditions.

Shop around for an individual policy because coverage and costs vary significantly. Start your research at, a Web site maintained by Georgetown University's Health Policy Institute that includes information on coverage protections in every state. Also consult your state's department of insurance. Check with it and your state attorney general's office to see if an insurer you're considering has a record of consumer complaints.

This article appeared in Consumer Reports Money Adviser.
Posted: August 2009 — Consumer Reports Money Adviser issue: September 2009