After years of planning and saving, it’s finally here: your retirement. If you’ve achieved financial freedom and can afford to stop working full time this year, congratulations!
Retirement planning was no easy task. Now, it’s time to transition from preparing for retirement to being retired. If you’re planning to retire later this year, you should take the following five steps as soon as you can to prepare yourself to flourish financially over the coming years.
1. Maximize your savings.
If you’re not already doing so, maximize your contributions to your tax-deferred accounts such as your 401(k) or 403(b) plans and traditional individual retirement account, or IRA. You want to make sure you at least contribute enough to get the full employer match. You should also be maximizing your after-tax retirement accounts, such as your Roth IRA or Roth 401(k) plan. The next few months may be the last ones in which you can contribute to these accounts. Retirement contributions require earned income during the year, so if you plan to stop earning money, then you can no longer fund many of your investment accounts.
Additionally, this may be your last year to take advantage of the tax benefits these accounts offer. Traditional IRAs and 401(k) plans, along with brokerage investment accounts and interest income, are all taxable when you withdraw the money. For about half of Americans, even Social Security can constitute taxable income. By setting aside as much as you can this year, you put off having to pay those taxes.
Finally, if your employer is matching any of your contributions, you’ll want to capitalize on that benefit one final time. Since a retirement match forms part of your compensation package, it’s smart to take full advantage of it while you’re still employed.
2. Review Social Security numbers.
Review all Social Security changes for 2020 to make sure you are getting the most out of your money. The Social Security Administration (SSA) puts out an official Fact Sheet that announces cost-of-living adjustments and relevant Social Security tax rates for the year.
In January, U.S.A Today outlined four changes affecting Social Security recipients in 2020. First, the tax structure altered slightly, and that means about 11.8 million American workers will pay nearly $300 extra in Social Security taxes this year. Second, if you turn 66 this year and continue to earn money, SSA will deduct $1 from your benefits for every $3 you earned over $48,600. Third, the number of Americans paying taxes on their Social Security will increase a little. Finally, the SECURE Act will allow those who turn 70½ after 2019 to delay taking required minimum distributions from their retirement accounts until they are 72. If any of these changes affect you, you need to be prepared.
3. Look at the potential 401(k) conversion strategies.
It may make sense to convert some or all of your qualified money into a Roth. This strategy can allow you to benefit from some tax advantages. Yes, you’ll owe taxes now, but in the future, you can enjoy your withdrawals tax-free.
If you think this approach may work for you, check with your employer to see if such a conversion is an option, because not every company permits this kind of transfer. If yours doesn’t, you can start making all future 401(k) contributions to a Roth instead of a traditional plan. On the other hand, if you can transfer your current 401(k) to a Roth, be sure to run the numbers on your tax bill first to determine if it’s a good choice for you. Then, set aside enough cash to cover the amount you’ll owe when you file your taxes.
4. Review Medicare changes.
Medicare offers tremendous benefits to older Americans, but it can be a tricky system to navigate. Before taking yourself off your employer-provided insurance plan, make sure you’re going to pay the right amount for Medicare and not more than you should. Start by going to the Medicare website and checking their annual review guide.
You may also receive notices in the mail during the fall about any changes ahead for your plan in the next year. Be sure to take a look at these, and contact your local Social Security office if you have any questions or concerns. If you need to enroll for Medicare coverage in 2021, you can do that between October 15 and December 7 of this year.
5. Get your estate plan set up.
An estate plan is not a luxury. It’s a critical part of making sure your family is taken care of according to your wishes. For some people, a simple will takes care of their estate. Other retired adults may benefit from more complex forms of estate planning. An attorney and a financial advisor can offer assistance in these matters.
If you need to build your estate plan from scratch, schedule time now to meet with these professionals. If you already have an estate plan, sit down with your attorney, advisor, executor and family members to review it. You want to make sure all your official documents reflect the best practices in the industry and your own wishes for end-of-life decisions, power of attorney designations and directions for your assets after you are gone.
Many people find their retired years full of meaningful and interesting activities. That’s why it’s important to keep up with your financial planning during the transition between work and retirement so you can make the most of the coming decades.
Forbes post written by Michael Foguth
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Gregory Ricks & Associates is an independent Financial firm. If you are looking for financial advice, tax strategy, income planning or have questions about the Social Security process, give us a call at 504-832-9200 or schedule an appointment at gregoryricks.com