Building a strong financial foundation for your future has probably been on your radar for a while. However, for many workers, the end of organized or paid employment can be rather amorphous. If your last day in the office is close enough to have you worrying, now is your time to sit down and go over the numbers.
Determine Your Budget
In your post-working life, your expenses will change. Determining the best budget for you, your spouse, and any dependent children will likely need attention to make sure that your monthly expenses will not completely wipe out your retirement income.
This means that you will want to consider
- any classes you want to take
- moving expenses
- new hobbies or a side hustle
- part-time or consulting employment
All of these factors will impact your expenses and your income. If you truly cannot face days without some kind of structure, start your side hustle before you retire so that you can move easily from your employer to work for yourself.
Do Not Forget Medicare
You will qualify for Medicare at 65. Make sure you check out Medicare.gov to set your policy in place, sign up with your physician or another recommended caregiver.
Additionally, make sure you look for other senior health benefits. This may include
- discounted gym memberships
- discounted prescriptions
- grocery discounts
Exercise and a healthy diet are a retirement investment that seldom gets mentioned but can serve you as well as more money.
Gain Your Full Benefit
If at all possible, avoid taking Social Security until you must. Not only will this gain you the full benefit of your contributions, but it can reduce your taxes in the decade before you retire.
For many of us, the idea of not working anymore can be a little unsettling. To settle into retirement a bit more slowly, consider working part-time to cover your expenses as you phase out of your working life to full retirement.
Be certain to keep an eye on the Required Minimum Distributions from your retirement accounts. Be aware that this RMD date has changed repeatedly over the years. While the age that you need to be when you start withdrawing money has changed, the penalties have not.
If you do not take the RMD by the deadline, the penalties can be 50% of your required withdrawal. Do not allow your retirement to be taken by this penalty. Your RMD dollar amount can be determined by an IRS worksheet. To avoid paying this penalty, start tracking this risk once you turn 69 so you will be ahead of the curve and can start making withdrawals on or before the deadline.
When you turn 50, take inventory of what retirement accounts you do have. If you have your 401k maxed, consider setting up a Traditional IRA to reduce your current tax burden and increase your investment returns.
You can also set up a Roth IRA. Be aware that one of the big benefits of a Roth IRA is that you will not face an RMD penalty if you choose to let that money grow. However, a Roth IRA is funded with post-tax dollars. You will not gain the benefits from this investment until you take money out, as both your principal and gains will not be taxed.
There is a great deal of uncertainty in our world. Nobody has ever worried that they had too much put away for retirement. However, to make sure that you get the full benefits of your Social Security, get signed up for Medicare and avoid that RMD penalty.