When retirement is coming up close—and you have that exciting date in mind—make sure you have everything organized to make it a seamless, enjoyable transition.
Retirement Tip of the Week: Before you pack your bags for a vacation or throw away the alarm clock, make sure you have everything in order for your retirement in the weeks leading up to the big day.
The first thing every person should have—months, if not a year, before retirement—is a plan, which incorporates the financial aspects of this next chapter. List out all of your assets and liabilities, your cash flow coming in and out, the current and future expected and fixed income sources as well as some of the other pertinent information, such as health insurance, life insurance, etc. Know when and how you’ll tap into your investment accounts, if you’ll diversify your withdrawals for tax purposes, and have an idea of when you’ll begin claiming Social Security, if you haven’t already.
But there’s so much more to account for before calling it quits. For example, if your job or any other previous job offers you a pension, confirm your benefit options before you tell your employer you’re retiring, said Marguerita Cheng, a certified financial planner and founder of Blue Ocean Global Wealth. There are various ways to receive a pension, and the wrong decision could cost money.
“The biggest mistakes I see heading into retirement are pension option decisions,” said Byrke Sestok, a certified financial planner with Rightirement. “Most people either take a 100% joint and survivor option or a full single pension option. They do not consider the opportunity cost of the joint option and can leave their spouse short on money if they die early and take the full single option.”
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Now might be a good time to consult with a financial planner, who can walk through the various withdrawal options with you. Retirement income planning is becoming much more popular—it’s the financial planning that focuses on how to spend money in retirement, which can feel hard to do after decades of saving, investing and striving to preserve assets.
Also check your Social Security benefit options, such as how much you would get at various claiming ages, which you can do by contacting the Social Security Administration or making an account on their site at SSA.gov, Cheng said.
If you have a financial adviser or accountant, confer with them if you need to make any immediate changes to the way you file so that you don’t get any unpleasant surprises during tax season.
Healthcare is crucial—if you’re retiring before you turn 65, which is the age when you’re eligible for Medicare, have a plan for your insurance. Will you be getting private insurance, or does your spouse have coverage for the both of you? Medical costs can be quite expensive, and they only get costlier the older a person gets, when issues may become chronic or more common. If you are closer to Medicare age, and you have a Health Savings Account, stop contributing six months before enrolling in Medicare as there could otherwise be tax penalties, said Matt Stephens, a certified financial planner and founder of Advice Point.
And budget. Although it’s not the most fun task, it is a great way to stay on top of spending and live within your means. Budgeting can also help for future finances—ask yourself questions such as will your cash flow needs change and can I maintain my everyday spending and delay Social Security to get more out of it? Holding off on Social Security checks isn’t for everyone—some people can’t afford to delay, while others may not want to if they have health or longevity issues, but it is something to consider.
Here are a few other things to check on before your last day of work, said Ajay Kaisth, a certified financial planner at KAI Advisors: annuities and illiquid assets, moving out of state or the country, life insurance needs, long-term care plans, estate plans (such as if you intend to leave an inheritance or you need to review the beneficiaries listed on your accounts) and any unused vacation days that could be transferred to more compensation now that you’re retired.
Some retirees may also prefer to consolidate 401(k) plans and IRAs and review their risk profile right before retiring, said Jon Ulin, a certified financial planner and chief executive officer of Ulin & Co. Wealth Management. “Having less accounts and statements in your mailbox will not only reduce your headaches for tax preparation, but provide a more focused approach to investing while knowing what you own and why,” Ulin said.
The nonfinancial aspects are just as important as the financial ones, though. Not only should you have a plan for your money in retirement, but have a plan for what you’ll do during your days. “We thrive when we have purpose in our lives,” Stephens said. “Many retirees become dissatisfied after a few months of retirement unless they have heavily engaged in their favorite hobbies, actively volunteering, or even working part time. Having no reason to get up in the morning can cause a lot of problems.”