If you are considering retirement in 2019, first of all a big congratulations is due! Retirement is a period you should be looking forward to. This will bring you the freedom you have always been looking for. At the same time, you do not want to rush into retirement without being fully prepared. Below are a few key things you should look further into and know about retirement in 2019 prior to taking the dive.
- You can receive Social Security if you were born in 1957 or earlier: If you will be 62 years old or older, you can file to receive your Social Security next year. Social Security won’t cover all of your retirement expenses, but it should help, and you can start collecting the benefits, which you have paid into all of these years. One thing to point out is, you could wait until your 70, which is considered full retirement age for Social Security, and you will receive more benefits. In fact, your benefit will increase by 6 percent to 8 percent annually until you reach age 70, so it makes financial sense to hold off if you can.
- Assess whether you should start withdrawing from your retirement accounts: Hopefully you have saved a lot of your retirement money in a tax advantaged retirement accounts such as an IRA or 401(k). However, it may not be the best time to withdraw money from those accounts until you withdraw from other savings accounts. This can include checking account, other savings accounts, CDs, and cash accounts. Also the end of 2018 was a rocky time during the stock market, you may want to wait until the market rebounds.
- Make sure you have adequate health insurance: Medical expenses and health insurance is going to be one of the most expensive items in your retirement. If you are over 65, you are eligible for Medicare, but if you are not, you will need to purchase insurance on your own. This is often the most overlooked item because usually your employer paid for your health insurance.
- Know your expenses: Prior to diving into your retirement, you should have a very clear picture of what your expenses are and how they may change in retirement. This will be critical for you to estimate the amount of income and savings you need. It is also recommended to try to pay off all debts (credit cards, mortgage, student loan, etc.) before going into retirement. This will help with your expenses and your flexibility in retirement.
- Evaluate your income and tax strategies: The source of income is going to vary person to person, and may include a defined pension, retirement savings, tax savings accounts, investment accounts, health savings accounts, and business or trust income. All of these income streams will have different tax outcomes. For example, withdrawals from traditional IRAs or 401(k) are taxed as ordinary income, but Roth IRAs or Roth 401(k)s withdrawals are tax-free. Also, if you have a taxable investment account you likely will have to pay capital gains taxes on some of the withdrawals. Additionally, you will only be able to take distributions from your retirement accounts once you hit age 65. By age 70 ½ you will be forced to take required minimum distributions.
- Check the risk of your retirement accounts: You will need to make sure your investment mix makes sense for your proposed retirement plan. I would recommend talking with a financial advisor, but you will need to figure out how much of your portfolio should be dedicated to stocks vs. bonds. vs. cash vs. alternative investments. Evaluating your allocation of your entire portfolio is key when entering into retirement.
- Have a cushion: When you are calculating your income needs for the next few years, put that amount in cash or less risk investments as you don’t want to risk that money declining in the stock market. If the market goes down, you may have to sell at the wrong time.
- Prepare your emotions: Transition to retirement can be tricky. You may lose a part of your self-identity so make sure you find other alternatives to help you retain that. Volunteering, strong friendships and anything that you enjoy will help you keep your self-identity. It is easier said than done, but it is very important to do this.
Retirement can be a very exciting life change, and it should be a positive experience. Please just make sure you prepare for it and know what you are getting into.
Does anyone have any recent experience that they would like to share?