Planning To Retire In 2025? What You Need To Know To Prepare

If you’re expecting to retire in 2025, there are steps you can take to prepare for the next stage of life.

Before you shift from saving to spending down your retirement nest egg, it may be a good time to make changes to your investment portfolio, understand your spending habits, and, if you need to, contribute more to your retirement accounts.

Prepping Your Portfolio For Stock Volatility

As people approach retirement, experts generally recommend that people make their portfolios more conservative. While the S&P 500 has been on a tear this year, the outlook for next year remains uncertain, with some analysts warning about a fall in equity prices in the future.

Kevin Khang, a Senior International Economist at Vanguard, notes that a bear market at the beginning of retirement can severely hamper people’s savings in the long run if they’re not careful.

“We’ve been in a strongly appreciating stock market environment. That type of environment can make your sense of risk a little dull,” said Khang. “One way to be prepared [for a downturn] is to be a little more conservative or set aside cash. As long as you don’t touch your portfolio and crystallize the temporary bear market, you’ll be okay.”

In order to avoid tapping your nest egg during a downturn, Cameron Valadez, a CFP at Planable Wealth, recommends that his clients have a cushion of conservative investments, like one to two years’ worth of expenses in cash equivalents and three to five years’ worth of expenses in laddered government bonds like Treasurys or Treasury inflation-protected securities (TIPs).

“Generally, every five years, we have some sort of market downturn in the 20% to 30% range. That’s fairly normal,” said Valadez. “And if someone has five years worth of cash [and bonds], they should be able to weather the storm.”

Consider a Phased Retirement, If Possible

If they can, Carolyn McClanahan, a CFP at Life Planning Partners, suggests that her clients try out phased retirement where they work reduced hours while still doing some of the activities they want to do in retirement. 

“[Phased retirement] allows you to get used to what you’re going to do with your time when you’re no longer working,” said McClanahan. “It also allows you to keep [your] spending in check and still earn an income.”

Christine Benz, director of personal finance and retirement planning at Morningstar notes that phased retirement may improve emotional well-being too.

“[Working] gives people a sense that they have a purpose,” said Benz in an October interview. “Work often puts us into contact with other people, which is really good for our brains as we age.”

If Necessary, Boost Your 401(k) Contributions

And if you’re not feeling confident about how much you have saved and you’re still working, it could be a good idea to stash more money in your 401(k).

Thanks to Secure 2.0, some older workers will be eligible to make even greater contributions to their workplace retirement plans like 401(k)s. Starting in 2025, workers who are ages 60, 61, 62, or 63 can make contributions worth up to $11,250—versus $7,500 for all other workers age 50 and older. 

Michael Griffin, a CFP at Henssler Financial, suggests that this rule could be especially beneficial for people who didn’t save a lot when they were younger. “If people have the additional cash flow from their earned income to make those catch-up contributions, that’s a good avenue to take,” said Griffin.

Evaluate Your Spending 

If you’ve been diligently saving and investing over decades, it’s important to have a spending plan as you head into retirement, so you don’t end up running out of savings.

A common rule-of-thumb is that retirees will spend roughly 80% of their preretirement income, but Benz recommends that people get more granular when developing their spending plans before they retire.

“Look at what you’re spending now, and how that might change in retirement—taxes might change, you might be planning relocation, you may no longer be commuting. Look at the whole gamut of expenditures” said Benz. “You can’t perfectly foresee the future, but you can at least get your arms around some of these knowables.”