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Freedom for Retirement™ is the podcast designed to help you move beyond the fear of the complexity of finances so you can be financially free to achieve personal significance. Tune in with Josh Duncan each week to turn fear into fuel that drives you into Freedom & Significance.
Welcome to the Freedom for Retirement Podcast. If you're a high earning professional, business owner, or someone approaching retirement and wondering whether you are truly on track, you are in the right place. This podcast is all about helping you make smart, confident financial decisions without the fear, confusion, or sales pressure that so often comes with money advice. Each episode is designed to break down complex topics like retirement planning, investing, taxes, and cash flow in plain English so you can understand what really matters and avoid the most common and costly financial mistakes. Everything you hear here is educational, fiduciary focused, and grounded in real world planning experience working with clients just like you.
Josh:I'm your host, Josh Duncan, partner at F5 Financial Planning. Let's get started. You're in the homestretch, Maybe you're twelve months out from retirement or even closer. You've been saving for decades. You've run the numbers.
Josh:And honestly, it feels like the hard work is done. But the last year before retirement is not the finish line. It might be one of the highest stakes financial years of your entire working life. I'm Josh Duncan, partner at F5 Financial Planning, where we take a fiduciary approach to maximizing our clients' wealth. Today, I'm gonna walk you through four mistakes in your last year before retirement that could take a major toll on your retirement.
Josh:They're not complicated. They're not obscure. They happen to smart, well prepared people, people just like you, because people are focused on the emotional milestone of retiring, not the financial mechanics of how they actually leave. By the end of this video, you're going to know exactly what those four mistakes are, why they happen, and most importantly, what to do instead. Let's get into it.
Josh:Here's the first one. And it's one of the most common things I see. Most people reach the last year before retirement thinking, I've run the numbers, I know what this looks like, and maybe they have. Maybe they've been to a financial planner. Maybe they've used an online calculator.
Josh:Maybe they just know their Social Security estimate and their account balances. But there is a big difference between running the numbers and stress testing the plan. And the reason the last working year is your last chance to do that stress test, you still have a paycheck. That sounds obvious, but think about what it actually means. Right now, if you discover that your projected retirement budget is off by $500 a month, that hits your paycheck.
Josh:You make an adjustment, you course correct, and life goes on. The moment you retire, that same gap hits your portfolio, and now you're not adjusting, you're spending down assets. Those are very different problems. So here's what I want you to actually do this year. Not think about it.
Josh:Do. First, test drive your retirement budget. For three to six months, try living on what you've projected your retirement spending to be. Not approximately, not close enough, the real number. What you find out will be far more valuable than any spreadsheet projection.
Josh:Second, account for the front loading effect. This is something people consistently underestimate. Your one retirement is frequently a very expensive year. A new car you've been putting off, a home project you've been deferring, that big trip you've been promising yourself, that bucket list travel. These are real costs, and they are not average costs.
Josh:They tend to cluster right at the beginning. Third, answer this question before you retire, not after. What is your plan if the market drops 20% in your first year? Do you have two years of living expenses in cash or short term reserves so that you are not forced to sell investments at a loss just to pay your grocery bill? If you don't have a clear answer to that question, that is the conversation to have this year.
Josh:While you still have the income to build that cushion if you need to. Okay. Mistake number two. This one frustrates me because it involves money you already earned. You did the work, you just didn't collect what you were entitled to.
Josh:When most people think about their last year of work, they think about their salary, their retirement account, maybe their bonus. But there's an entire category of employer benefits that people walk away from simply because they didn't do a comprehensive audit before their last day. Let me walk you through the common ones. Uninvested equity, stock options, RSUs. If any part of your compensation has been in company equity, you need to know the exact vesting schedule.
Josh:Some of it may have a cliff date, meaning if you leave one day before that date, it disappears. Timing your retirement around a vesting event could be worth tens of thousands of dollars. Know those dates. Unused paid time off. Does your employer pay out unused PTO when you leave?
Josh:Many states actually require it, but company policies vary. If you have four weeks sitting there and you've never checked the policy, check it now. That can be a meaningful check on your way out the door. The four zero one k employer match. If your company matches your contributions and you retire mid year, you may be leaving a partial year of matching on the table, especially if the match is calculated annually and requires you to be employed on a certain date to receive it.
Josh:This is worth understanding before you pick a retirement date. Pension elections. If you're lucky enough to have a traditional pension, here's something most people don't realize. The payout election you make, single life versus joint and survivor, lump sum versus annuity, is a one time irrevocable decision. Once you sign those papers, you cannot change your mind.
Josh:This deserves serious careful analysis well before your last day. Do not let anyone rush you through it. And finally, life insurance coverage through your employer. These benefits typically end on your last day or at the end of that month. If you haven't first decided if you still need coverage, you're behind.
Josh:If you do need continued coverage, what are you doing to continue or replace what you have? It could take three months or more to get a new life insurance policy issued. The time to handle this is before you retire, not after. The framing I want you to take away here is simple. These are benefits you already earned.
Josh:The only question is whether you collect them. Mistake number three. And for a lot of people, this can be an expensive one. If you are retiring before age 65, you have a health care gap problem. Your employer coverage ends typically on your last day or the end of that month.
Josh:Medicare doesn't start until 65. That gap might mean one year. It might be five years. And navigating it without a plan can cost you tens of thousands of dollars or leave you uninsured. Now, most people are vaguely aware that options exist.
Josh:COBRA, the ACA marketplace, a spouse's employer plan. They know these things are out there. What they don't always do is make the decision and get enrolled before their last day. That's the mistake. Not the knowledge gap, the execution gap.
Josh:So let's talk about what you're actually choosing between. COBRA lets you continue your current employer coverage for up to eighteen months. The benefit is continuity, same doctor, same network, zero disruption. The downside is cost. You're now paying the full premium, including your portion your employer used to cover.
Josh:For many people, that's a shock. The ACA marketplace, the Affordable Care Act plans, can actually be significantly cheaper once your income drops in retirement, especially if you're drawing down assets from a taxable account rather than taking a salary or drawing from your IRA. Your subsidy eligibility is based on your projected income. But here's the keyword, projected. You need to carefully estimate your first year retirement income to figure out what subsidy you might qualify for.
Josh:Financial Planner can help you model this, and the savings can be substantial. If your spouse is still working and has employer coverage, adding you to their plan may be the simplest and most cost effective option. But understand the enrollment window. Losing your own employer coverage is a qualifying event that opens up a special enrollment period. You can't wait until open enrollment if you miss that window.
Josh:Now, a quick word on HSAs because this trips people up. If you're currently on a high deductible health plan and contributing to a health savings account, here's what actually ends your eligibility to contribute. Enrolling in Medicare, not retiring. If your health care bridge plan, whether it's COBRA, an ACA plan, or a spouse's plan involves staying on a high deductible plan, your HSA contribution window stays open. But if you're heading straight to Medicare at 65, understand that that clock is ticking.
Josh:Max those contributions every year you still can. The bottom line on health care, know your last day of coverage, compare your options, and get enrolled before the gap opens. Enrollment deadlines are real, and you cannot retroactively fill an uninsured period. And mistake number four. This one is probably the least glamorous and probably the most financially consequential of all four.
Josh:Here's the thing most people don't realize. Your retirement date is a tax decision. It's not just a calendar milestone. It's not just about when your HR paperwork goes in. The specific date you choose controls more than you think.
Josh:Let me explain what's actually at stake. Your retirement date controls how much earned income you report this year versus next year. That affects your tax bracket for two years at once, the year you retire and the year you don't. If you have a large bonus equity payout or deferred compensation hitting the same year you retire, that income stacking can push you into a significantly higher bracket. Or if you time it carefully, you can position yourself in a lower bracket for both years.
Josh:Your retirement date also controls whether you can still match your four zero one k and catch up contributions. Those contributions require enough paychecks remaining in the year to actually make them. If you retire in March, you've lost nine months of contribution opportunity, and possibly years of tax deferred or tax free growth, depending on the account type. The same logic applies to IRA contributions, both traditional and Roth. Contributing to an IRA requires earned income in the tax year.
Josh:No income, no contribution. If retirement is coming, and you want to get one final year of IRA contributions in, make sure you plan for. And if you have equity compensation, stock options, RSUs, anything like that, the timing of when you exercise or sell those shares relative to your income level that year is a significant tax planning conversation. Exercising options in a high income year versus a lower income year can mean thousands of dollars in difference. Now, and I want to spend a moment on this because it belongs right here, Social Security timing.
Josh:I see people treat this as an afterthought. I'll figure out Social Security after I retire. That is backwards. When you file for Social Security, when your spouse files, how those decisions interact with your first year income level and tax bracket, all of that is a retirement date level decision. If you file too early, you lock in a permanently reduced benefit for life.
Josh:If you have two spouses in the household, there's a coordinated filing strategy that can meaningfully increase lifetime household benefits. These are decisions that need to be made before you retire, ideally as part of the same conversation where you're choosing your actual retirement date. The practical takeaway is this, have a conversation with your CFP and your accountant before you pick a date, not after. The date is not arbitrary. The right date for you might be the December.
Josh:It might be February 15, It might be tied to a vesting event or a bonus payment, but it should be intentional, not just the birthday you've been counting down to. A well timed retirement day can be worth thousands of dollars, and arbitrarily choosing one can cost you just as much. Okay. Let's bring this home. We've covered four mistakes today, and I want to be clear.
Josh:None of these are the results of anyone wanting to blow up their retirement plan. They happen because everyone is focused on the emotional milestone of crossing that finish line. And I completely understand that. Retirement is a huge life moment. But the financial mechanics of how you leave matter just as much as the decision to leave.
Josh:So here's your quick recap of the four things to get right in your last year. Number one, stress test your income plan while you still have a paycheck. Test drive your budget. Plan for year one front loaded spending. Build a cash cushion to protect yourself from sequence of returns risk.
Josh:Number two, do a complete audit of your employer benefits before your last day, knowing your vesting date, PTO payout, your matching timing, your pension election options, and your coverage end dates. Number three, secure your health care bridge plan before your last day of coverage. Compare COBRA ACA marketplace plans and a spouse's plan. Understand how your income level affects your subsidy. Know when Medicare enrollment cuts off your HSA contributions.
Josh:And number four, treat your retirement date as a financial decision, not just a calendar milestone. Coordinate the date with your tax situation, your final contributions, your equity compensation, and your Social Security filing strategy before you pick a date, not after. The last year before retirement is not cruise control. It's arguably the highest leverage financial year of your life because you still have the income, the time, and the ability to course correct. Use it well.
Josh:As always, everything I share in these videos is for educational purposes. Your specific situation is unique, and none of this is personalized financial tax or legal advice. If you're approaching retirement and wanna make sure you're not leaving any of these things on the table, working with a fee only fiduciary financial planner is the way to make sure the plan is built specifically for personal significance, please visit our website at www.f5fp.com. Thanks for listening, and I'll see you in the next episode.