Planning to Retire Next Year? 5 Things You Won’t Want To Miss

Are you considering retirement next year? While you may be excited and gearing up for your last lap, here are 5 retirement-ready steps you don’t want to miss before hanging your hat. 

1. Decide When To Receive Social Security

One of the most impactful decisions in retirement income planning is determining when to start Social Security benefits. There are numerous factors to consider, including:

• Life expectancy

• Current and future financial needs

• Marital status and dependents

• Your health

The earliest you can collect benefits (without a qualifying reason) is 62, but by collecting “early,” you’ll see a permanent 30% reduction in your monthly check. Typically, the longer you can afford to wait (up to age 70), the larger your monthly benefit. Another option is to wait until your Full Retirement Age (FRA). Your FRA indicates when you’re eligible for your entire benefit or what the Social Security Administration (SSA) calls your primary insurance amount (PIA). If you were born in 1960 or later, your FRA is 67. Check out this chart to see where you fall. You also have the opportunity to delay collecting benefits until age 70. For every month after your full retirement age, you accrue delayed retirement credits, which increase your benefit by about 8% annually. These credits stop accruing at age 70, where you could increase your monthly checks by 24% (if your FRA is 67). If your financial and personal situation permits, it may be wise to hold off receiving benefits until 70. Let’s look at an example: Bob B is 62 and earns $60,000. If he enrolls in Social Security, the maximum benefit he could receive is $1,161.00. However, if he waited until age 70, he would get $2,235.00 monthly—a considerable difference even factoring in inflation. To put hypothetical dollars into your situation, use the SSA’s official calculator.

2. Sign Up For Medicare

You can’t retire comfortably without planning for health coverage. Unless you have qualified coverage through a current or previous employer, you’ll likely join the 64 million Americans on Medicare. But Medicare can be complex, so here’s an overview to help you get started. 

• Original Medicare (Parts A and B) covers hospital and medical insurance. 

• Medicare Advantage (Part C) combines original Medicare with supplemental insurance through partnerships with private insurers.

• Part D covers prescription drug coverage. 

• Medigap Plans are supplemental plans that “bridge the gap” by covering other needs such as dental, vision, hearing, and more.

Medicare open enrollment season is from October 15th to December 7th, so now is a good time to start scoping out plans. If you plan to retire before you’re eligible for Medicare (65), determine your health insurance options and plan for your coverage needs. Healthcare is usually 15% of your budget, but that doesn’t include “big-ticket” items like long-term care. While you’re waiting for Medicare, here are some healthcare options to consider:

• Check with your employer if you can continue coverage or if they offer a retirement health plan.

• See if your spouse can add you to their health coverage

• Check on the healthcare marketplace

• Look into COBRA to maintain your current health coverage—keep in mind that you’ll cover 100% of premiums instead of splitting the cost with your former employer. 

• Save for the gap in healthcare with an HSA if possible.

3. Create Or Update A Retirement Budget

Building a retirement budget helps you be intentional about spending in your golden years. Many people assume spending decreases in retirement, but you may be surprised by how much you actually need. In fact, Fidelity reports that you should expect to spend about 80% of your pre-retirement income. This makes it all the more important to create a budget that works for you. Ask yourself,

• What are your retirement income sources (Social Security, pension, real estate, 401k, IRA, brokerage account, etc.)?

• Do you envision your retirement lifestyle changing significantly from your current one, like a big move?

• Do you have outstanding debts?

• What are your priorities?

• How can you make your budget sustainable in the long term?

Our financial advisors can help you answer these questions to create a withdrawal plan that balances your lifestyle goals and financial needs. Remember, creating a realistic and accurate budget is imperative. You can even test out your budget pre-retirement to ensure it can meet your needs. 

Bonus: Selecting A Pension Payout

When it comes to fixed income in retirement, Social Security and pension benefits likely spring to mind. You’ll need to carefully select the pension payout structure that will maximize your payout and protect any dependents. In general, you have four options:

• The single-life option comes with the highest monthly payments, but benefits only cover you. Should you pass away, your spouse or dependents wouldn’t receive checks.

• Joint-life payouts result in slightly smaller monthly checks, but payments continue to your selected beneficiary after you pass. Many companies allow you to pick between 50% or 100% of benefits. Just keep in mind that the higher the percentage, the lower your monthly checks. 

• Life with period certain options provide lifetime payments with guaranteed income to a beneficiary for a certain number of years (say 20).

• A lump sum allows you to receive your entire pension payout at once, giving you the choice of how to invest. 

4. Consider Rolling Your 401k into an IRA

If you have multiple 401ks from previous employers or you’re on the brink of retirement, consider rolling all or some of those assets over into an IRA. Opening a Rollover IRA will allow you to move funds from your 401(k) into an IRA. This preserves the tax-deferred status of your retirement assets without paying taxes or withdrawal penalties. It’s a complicated financial maneuver, so make sure to discuss it with your financial advisor before proceeding. Moving your money over to an IRA has several benefits:

• Money can grow tax-deferred.

• You can combine several accounts in an IRA to simplify management

• IRAs often have broader investment options than 401(k)s, including stocks, bonds, CDs, mutual funds, etc.

When deciding where to invest, consider your risk tolerance, capacity, goals, and timeline. Remember that your investment needs may change when you retire. Perhaps it's time to rebalance to ensure your investment choices support you through the transition. Once you’ve sorted through your investments, it’s time to move on to the most exciting part of retirement planning: your life. 

5. Determine How You’ll Spend Your Time

One of the best parts of retirement planning is deciding what you’ll do when you get there. Do you want to prioritize spending time with your family? Take up a new hobby or fitness activity? Travel to your dream destination? Lifestyle planning is central to living out a joyful retirement. Deciding what’s most important to you can help you find a purpose, build a routine, give you something to work for, discover new ways to grow, and create a community. You could join a community garden, volunteer at your local museum or library, or even start a charitable organization. Whatever you choose, having a sounding board and a financial support system can help to make your retirement as stress-free as possible. Ready to get started? Reach out today.