After a stressful 2020, you\u2019re thinking more-and-more about retirement.While the bulk of your retirement prep work and heavy lifting has been completed by the time you\u2019re a couple of years from retirement, there\u2019s still a few boxes you\u2019ll want to check off before finally saying adios to the workforce. Let\u2019s go through them.
1. Social Security Decision
You\u2019ll need to decide when to collect Social Security benefits. The earliest age is 62. Unless you\u2019re retiring early and need the benefits to help cover expenses like health insurance, it\u2019s advantageous to wait. At 62, your benefits would be reduced by 25% or more. You won\u2019t collect 100% of your benefits until you\u2019re 66 or 67, depending on what year you were born. When you wait to collect, keep in mind that benefits increase by 8 percent\/per year up until you\u2019re age 70.
2. Get Your Finances Simplified
Do you have multiple brokerage accounts, savings accounts, checking accounts, 401(k)s, IRAs, and other retirement savings accounts? Perhaps, you\u2019ve lost track of an account?
First, simplifying and consolidating your various small financial accounts into a larger one will make it easier for your heirs to step into control if you had a medical emergency, needed long-term care, or passed away.
Second, you can reduce paperwork, possibly save some cash, and better keep track of your set income to expenses ratio by having everything neatly confined. For example, aggregation with a single provider can offer some economies of scale like cheaper expense ratios.
Lastly, if you\u2019ve lost track of an account, then you\u2019re missing a piece of your financial pie that could make a big change in how retirement tastes. missingmoney.org and unclaimed.org are good places to start tracking lost and unclaimed funds.
3. Give Your Portfolio A Health Checkup
Ideally, your portfolio at this point should be moderate-risk. It should be about half and half stocks and bonds. If the stock market is causing you any worry, then consider a move to more steady stock funds like VEIPX or TWEIX, who\u2019ve both held up well in previous downturns.
A bucket system may help protect you against your biggest retiree risk – forced sells during plunges. During plunges, the bucket system allows you to have enough cash and bonds that you won\u2019t be forced into selling stocks to pay your debts. You\u2019ll divide your nest egg into three buckets:
\u2022 Bucket one – cash for living expenses not otherwise covered in the next few years.
\u2022 Bucket two – short and intermediate term bonds to cover money you\u2019ll need in the first ten years of retirement.
\u2022 Bucket three – diversified stocks for money needed in the distant future.
4. Make A Plan With HR
Schedule a time to speak with your company\u2019s human resources department about your retirement. Topics you\u2019ll want to ask about include:
\u2022 Are unused vacation days paid upon retirement?
\u2022 Is receiving profit-sharing payouts, bonuses, 401(k) match, or any other income aspect impacted by your planned retirement date?
\u2022 If retiring before Medicare-age, what retiree health benefits are offered?
\u2022 If a 401(k) is left as-is verses rolling it over into an IRA, can distributions still be taken? How? Is there a fee?
\u2022 If a pension is available, what are the options for payout?
One note on lump-sum pensions to keep in mind is that extending your retirement may not increase your pension. Lump-sum pensions are calculated based on interest rates. The higher the interest rate, the lower the pension. Extending your retirement when interest rates are rising can actually result in your pension going down, not up.
5. Study Medicare Closely
Medicare is a difficult beast to navigate, and the sales pitches you get from supplement insurers only adds to the confusion. So, you\u2019ll want to start studying now, understanding how it works, what coverage gaps exist for you, and what you need verses don\u2019t need in supplements. Here are some highlights you\u2019ll want to consider:
\u2022 Upon turning 65, Social Security beneficiaries are automatically enrolled in Medicare parts A (hospital care) & B (doctor and outpatient visits.) If you\u2019re delaying your SS payment, then it\u2019s up to you to enroll on your own.
\u2022 If delaying your SS claim and still covered by your employer\u2019s health plan, then you\u2019ll likely find it beneficial to go ahead and sign up for part A at age 65 since there\u2019s usually not a premium.
\u2022 You may want to opt out of part B since it charges you a monthly premium for service.
You may also want to opt out of part D, which covers prescriptions. The caveat here is your employer\u2019s offered insurance being as good as what Medicare offers. If not, and you select to opt out, then you\u2019ll face penalties when you sign up in the future.
\u2022 To ensure you\u2019re not left without coverage, plan to sign up for part B around six weeks prior to retirement. You have eight months after leaving your job to sign up for part B without penalty.
\u2022 Be deciding if you want Medicare Advantage. This is basically a combination of parts B & D with a supplemental medigap plan to cover the copayments, deductibles, and other traditional healthcare costs that Medicare doesn\u2019t include. These plans provide private insurer medical and drug coverage within a network, meaning you\u2019ll need to carefully research your plan options and determine if your preferred health care providers are in the offered network of a plan.
6. Should An Annuity Be On The Agenda?
Without a traditional pension, an immediate annuity might be a good option for you. A common strategy is to calculate fixed monthly expenses – car note, mortgage, insurances, utilities – and buy an annuity that gives a congruent payment. Basically, you give an insurer a lump sum of money in exchange for them paying you a monthly amount each month for either the remainder of your life or a specified amount of years. If you choose a joint-and-survivor annuity, that payment continues through your spouse\u2019s life should he\/she outlive you.
Another strategy is a deferred income annuity. Ideally, these are bought at least 10 to 15 years out from retirement since they take 10 years to mature. However, if you\u2019re taking an early retirement or expect your expenses to be greater in the next decade, a deferred annuity may be a good option. They\u2019re much less costly than an immediate annuity, but they also have a major risk verses reward. Your heirs get nothing if you pass away before payments begin. The fix is to opt for return-of-premium benefits, but this reduces your payout quite a bit.
In closing, the finish line is just around the corner, but now isn\u2019t the time to slack just yet. You\u2019ll want to make sure these important boxes are checked so that you can retire in the peace and confident you\u2019ve worked all these years to afford.<\/p>\n\n\n\n
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