First things first, take a moment to congratulate yourself on the great milestone ahead. You’ve put in the time and had a great career. Look back at all you have accomplished up to this point and all of the hard work it took to get here. On top of all of the hard work, it takes a lot of selflessness to have done everything you have at work and in your personal life, so now it’s time to think about you.
What does retirement look like? Is it fishing trips and a vacation home? Maybe it simply means being able to spend more time with your children and grandchildren. Whatever retirement may look like for you, it will certainly take some planning to make sure you are successful and able to do the things that you have been dreaming about. Let’s talk about a few items to help you take control of your retirement.
Understand Social Security
Retirement doesn’t mean you have to automatically start drawing from Social Security. In fact, in a lot of cases, it will make more sense to hold off even as little as two years before you start drawing. Each year of deferral after age 62 will increase the amount you are able to withdraw. You can continue to defer until age 70, when you will be forced to begin taking Social Security payments. A basic example from the Social Security Agency shows that waiting until age 70 can equate to a 76% higher withdraw amount than if you were to start at age 62. You also need to consider what will be the best option if you are married. Delaying now, could mean leaving your spouse with a greater amount should you pass first. All of these numbers are based on your full retirement age, which has been increasing in recent years and is based on when you were born. Check www.socialsecurity.gov/planners/retire/ageincrease.html to see when this will be for you.
Utilizing your retirement plans
What happens with your company sponsored retirement plan now that you aren’t working any longer? You have a few options to consider. You can start drawing from these plans like an annuity, which will provide you with a set amount each month or you may have the option to take a lump sum from the plan. This lump sum amount is yours to do with as you please. The option to roll the lump sum to an IRA opens you up to choosing new investments that can allow for continued growth, while also allowing you to draw income you need to sustain your lifestyle. You may also consider converting these assets to a Roth platform as well. While this is a taxable event, it could make more sense to pay taxes on those dollars now versus later when you are withdrawing the funds. Consider the known tax brackets you fall in today with the unknown of future tax situations when working through this option. Do you feel you are in a lower/higher bracket now than you may be in the future?
Replacing your income stream
One of the most important aspects of a successful retirement is planning where your income will come from to cover your expenses. Normally this is a combination of plans coming together to help you have enough to sustain yourself. It could be income from Social Security, drawing from your retirement accounts, savings accounts you have accumulated, rental property, or money from downsizing homes. In a lot of cases, individuals will find some type of part-time work consulting in their previous employment field or starting a small business they’ve always dreamed about. Finding the right strategy to utilize one of these, let alone a combination of these income streams can be extremely difficult and you can truly benefit from partnering with a professional advisor. The general rule of thumb expectation of a four percent withdrawal rate from your retirement accounts is being reconsidered by many advisors. You’ll be hard pressed to find two advisors with the same strategy, so do your due diligence to find the right fit for you.
Don’t forget about healthcare
Health care is confusing enough during your working years. Don’t forget to sign up for Medicare at 65 years old. Delaying could result in a penalty for late filing. To fill the gaps in Medicare coverage you may need to consider supplemental and prescription drug plans. On top of your normal medical coverage, think about options for paying for some type of assisted living down the road. Typical Medicare/Medicade will not cover all of your expenses for long term care or may only cover them for a short period of time. While no one wants to think about having to go down that path, it can be an extremely expensive piece to pay for out of pocket.
With our lifespans continuing to lengthen, having a proper plan is more important than ever to make sure we don’t outlive our assets. While I’ve only covered a few high level points here, there are many more in depth items to discuss. No two individuals or families are the same and as such, neither are their retirement plans. What may work for your best friend or family member, may not be the right choice for you. Indy Wealth Solutions is here to partner with you to work through these details, finding the best path for you and your family.