Retirement is a major life transition that requires changes to your income and lifestyle. Here are the
final preparations you should be making if you plan to retire in 2015.
Decide when to sign up for Social Security.
When you sign up for Social Security drastically affects how much you
will receive each month. Most baby boomers are eligible to receive full
benefits at age 66. If you sign up before age 66, your monthly payments
are reduced, and if you delay claiming up until age 70, your
payments increase.
"You want to consider the penalty for taking it early and the benefit
of delaying it beyond full retirement age," says Christopher Rhim, a
certified financial planner for Green View Advisors in Norwich, Vermont.
Members of married couples may also be able to claim spousal and
survivor's payments and strategize ways to maximize their benefit as a
couple. You can get a personalized estimate of your benefit by creating
an online account at socialsecurity.gov/myaccount.
Take care to sign up for Medicare on time. It's important to
sign up for Medicare
as soon as you are eligible to do so. "You should start submitting the
paperwork for Medicare up to three months before age 65," Rhim says.
"It's not something you want to wait and delay on because there are some
financial penalties if you sign up later." Also, take a look at
Medicare's premiums, deductibles, copays and coinsurance so you can get
an idea of how much you will need to pay out of pocket. If you retire
before age 65, you will need to find another source of health insurance
until you qualify for Medicare, perhaps through your state's health
insurance exchange or your former employer.
Assess your workplace retirement benefits.
Make an appointment with your human resources department to determine
which workplace retirement benefits will carry over into retirement.
Some fortunate employees get traditional pension payments and retiree
health insurance after leaving their jobs. You should also check when
you vest in your 401(k) plan and get to keep your employer's
contributions.
Consider rolling over your 401(k). When you leave your job, you have the option to
roll your 401(k) balance
over to an individual retirement account. To decide if this is a good
move, you need to compare the fees and investment options in the 401(k)
plan with those in an IRA. "If they do roll it all over into an IRA,
they get certain benefits from it," says Laura Mattia, a certified
financial planner for Baron Financial Group in Fair Lawn, New Jersey. "A
lot of times when you consolidate, you can take advantage of price
breaks and lower fees." However, if you leave your job at age 55 or
older (or age 50 for public safety employees) and plan to dip into your
401(k) balance immediately, you may want to leave the money you will
need in the 401(k) plan. You can take penalty-free 401(k) withdrawals
from the 401(k) associated with the job you left at age 55 or later, but
if you move the money to an IRA, you will have to wait until age 59½ to
avoid the
10 percent early withdrawal penalty.
Make a long-term investment plan.
Investors obviously want to keep their nest egg safe, but you also need
to make sure that it lasts the rest of your life and keeps up with
rising costs. "You really don't want to get too conservative because
your portfolio has to overcome inflation and management fees and trading
costs," Rhim says. "If you are looking at 20 to 25 years of retirement,
that is a long-term planning horizon and you need a competitive return.
That really is a call for stocks. You simply can't get that type of
return with bonds and cash." You also need to develop a plan for how you
will spend down your assets in a way that minimizes taxes and
penalties. "You should list all your financial assets, where they are
and identify what the strategy is behind them," Mattia says. "You want
to make sure you are reacting according to your strategy and not making
decisions emotionally."
Remember required minimum distributions.
Beginning after age 70½, you will typically be required to withdraw
money from your traditional retirement accounts every year and pay
income tax on each distribution. The penalty for failing to withdraw the
correct amount is 50 percent of the amount that should have been
withdrawn.
Develop a plan for emergencies.
Covering your basic monthly costs in retirement isn't enough. You'll
continue to need an emergency fund in retirement to cover unexpected
bills. "I always tell people to keep between six months to a year's
worth of expenses in a liquid interest-bearing account that you can get
to whenever you want," Mattia says. "Having some cash out at all times
also gives you flexibility, so if investments are not going in the right
direction, you can leave them alone for a while to get back on the
right track."
Decide how you will send your time. What you
decide to do in retirement
will have a big impact on your costs and quality of life. "Certainly
you will spend less on gas and don't have to spend as much on work
clothes, but some people are also going to spend more money now because
they have the time and don't just want to sit around the house," says
Craig Schmith, a certified financial planner in Durham, North Carolina.
"If you've got pent-up demand to travel, especially internationally, and
you haven't had time to do that, you need to think about budgeting that
in."
Culled from US News
