5 Things You Need to Know Before Retirement
Sometimes it seems there are so many “rules” for retirement. Saving a certain amount of money, waiting until the right time, creating a proper plan for your future. And while all of those “rules” are important, planning for retirement is very different from actually being in retirement.
For many years, retirement has been a piece of your paycheck funneled away into an investment, or a distant dream that you never anticipated coming true. Until it does. Someday you may find yourself at a point when you are ready to retire.
You may be overwhelmed by the amount of change that comes with retirement. We would like to help you out by giving you a list of important factors to plan out before you retire.
1. Plan for Taxes
Taxes will follow you into retirement, they will just come in different forms than when you were working. If you decide to work part-time in retirement, you will still pay income taxes on the amount you make, but if you aren’t working, here are the sources that play into your tax bill.
- In most states, your Social Security benefits are taxed. The IRS provides a worksheetto help you calculate the amount of tax you can expect to pay on your However, this isn’t the case in Washington.
- Distributions from your 401(k) or another workplace plan along with your traditional IRA will be taxed as ordinary income. If you have a Roth IRA, you may withdraw contributions anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings unless you meet certain conditions.
- Each pension plan varies and depends if you contributed with pre-tax or after-tax dollars. For most plans, it is pre-tax meaning you will need to pay taxes on your monthly payout.
2. Enroll In Social Security
Social Security covers a significant portion of today’s retiree’s income, about 40% total. Therefore, deciding when to enroll in your benefits is a crucial decision. Generally speaking, there are three options for enrollment.
- You can begin taking your benefit at 62, but your overall benefit will decrease by about 30%over the course of your life if you take it this early.
Full Retirement Age
- For those born in 1960 or later, that is 67 and once you reach it, you will be able to collect your full benefit based on your work record.
- Should you choose to delay taking your benefit until you are 70, your monthly payments would increase by about 25%over the course of your life.
Electing when to enroll in Social Security should depend on many factors: your spouse, your own work record, your health, and your finances.
3. Create A Health Care Plan
Health care expenses are among the most expensive for today’s retirees. From doctor’s visits to medication to surgeries, retirees can expect to pay almost $285,000on medical expenses alone in retirement. This cost makes it increasingly important to have a plan in place for your health care when you retire.
If you are 65 or older, you can enroll in Medicare, but it is a complicated system full of nuances that you need to research before committing to it. If you decide to work part-time, you may be able to still secure health care from your employer. No matter what you decide, be sure you have a plan in place.
4. Strategize Your Cash Flow
One of the many things that will change in retirement is the way you receive your money each month or your cash flow. It is important to know the sources of your retirement income so that you can plan your budget and payments each month. Take some time to consider how this will change from when you were working and what you can count on each month in retirement.
Typically, at TFS Advisors, we recommend that you try to live off of your anticipated retirement income before actually retiring to make sure the budget you’ve set works.
5. Prioritize Your Lifestyle
Retirement is so much more than a compilation of dollars and cents. It is an extension of your life, another phase where you are able to let your priorities, values, and vision take center stage.
Considering your lifestyle in retirement is crucial to having the retirement you saved for. It is important to think through where you want to live and how you will spend your time because these are concrete ways to make the next phase in your life meaningful and fulfilling.
Here at TFS, we work with you to combine your financial goals and your personal goals to help you pursue the retirement you have always dreamed of. Ready to get started? Set up a call with us!