Important Considerations to Make as You Transition to Retirement
You’re finally retired; congratulations! You have worked hard to get to the point of being able to transition to retirement, and I am sure you feel excited, optimistic, and scared at the same time. You might feel ready to switch back and forth between long vacations and golf trips to 12-hour days sinking into the La-Z-Boy. This chapter as you transition to retirement is one of the most exciting times in our lives, and retirement is all about enjoying your time. Still, before you get too comfortable on that couch, there are a few key considerations to explore as you transition out of the workplace.
Health insurance after retirement
When you leave your employer, you will find you have an option to continue your health insurance coverage under COBRA. Depending on your age and medical circumstances, this may provide an excellent opportunity to continue benefits and receive health insurance after retirement. Still, COBRA is generally only good for 18 months and can be very costly as most of the premium costs will now be taken on by you directly. Alternatively, you may decide to start exploring options on the health care exchange. For those age 65 or older, you will be eligible to enroll in the suite of Medicare programs. There are different parts to Medicare and even other plans available as well, allowing you to pick and choose the best options given your specific needs.
Did you know taxes are one of the largest retirement expenses?
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How to transition to spending in retirement
Your whole life, you have been in savings mode. You have earned an income and put away a percentage to allow you to get to this place of freedom. Now, as you transition to retirement, everything changes from an accumulation to a distribution phase. The transition to spending in retirement has many more impacts than you might expect. It will require a shift in mindsight to prepare for tighter cash flow and added discipline as the IRS allows full access to your nest egg. It requires a thoughtful retirement income strategy as income quickly becomes the primary driver while growth takes the back seat (although still necessary). And spending in retirement will require some strategic planning to make the most of your different income sources. As you move into retirement, it is essential to pull the right levers at the right time to maximize your income and minimize your tax impacts. For instance, you may have social security, a pension, a 401k, and a Roth IRA. Knowing which assets to pull from and in which order is what creates efficiencies with your hard-earned savings.
What to do with 401k when you retire
Now that you have retired, you have much more flexibility with your retirement savings. So what happens to your 401k when you retire? You have a couple of options. First, you can leave your 401(k) where it is and continue to invest the way you always have. Alternatively, you can roll over your 401(k) to your own IRA, which may open you up to the world of investment choices. The choice you make depends on your comfort and whether or not you have someone to help you. As we know, when we move into retirement, our strategy needs to shift from growth to income, so choosing the right option of what to do with your 401k when you retire to allow you to develop a thoughtful income strategy is vital!
When to take Social Security
You are retired! So, when do you take social security? You can begin to take social security benefits now, or you can wait. This is a question we come across all the time, and all too often, we see retirees pull the social security lever as soon as they retire, without much thought to how this impacts their goals. The best strategy is not always black and white. There are dozens and dozens of different ways a married couple can elect their social security benefits. The best option may be different for every person. A good starting point is to consider your longevity. If you expect to live a longer life, delaying benefits may provide a more considerable monthly benefit, but this doesn’t tell the whole story. It is crucial also to explore tax implications (yes, social security is usually taxed) and the impacts of any given choice on your other retirement assets. If we delay social security, it may mean we need to pull more from our retirement assets than is healthy. If we take social security simultaneously, we begin taking distributions; then it may lead to higher taxes than necessary. There are many aspects to address, but with some proper planning around when to take social security, you can avoid the typical social security mistakes we see and make the most of your retirement.
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Retirement is such an exciting time. Just be careful in losing sight of the very engine that allowed you to get to freedom. We often see retirees give up on their finances when they retire, finding themselves in a tough spot after a few years. This quick retirement checklist should give you a good starting point to prepare as you make your transition into this next chapter of your life.
If you are curious about more retirement considerations, check out some more information we have on the topic below or reach out to me to discuss other considerations in your transition.