6 Steps Seniors Should Consider Before Retiring
November 15, 2019
Reviewed and Updated by Alice Stevens,
Guest post from Alice Stevens at BestCompany.com
Those golden years have arrived. If you’re lucky, retirement is just around the corner. Before you retire, you need to make the following important considerations:
- Setting a retirement date
- Making withdrawals from retirement accounts
- Receiving Social Security benefits
- Enrolling in Medicare
- Writing a will
- Paying for your final expenses
Setting a Retirement Date
While you may have been eager for your retirement to start as soon as you began working, you need to consider your financial situation before you retire.
Take a look at your savings account and your retirement accounts. Think about how much your Social Security benefits will be. If you have a health savings account, also consider those numbers.
Determine your living expenses, health expenses, and the costs of your other retirement dreams.
Go over your available funds and expenses with a financial adviser to estimate how much you need to take care of yourself during retirement and compare those numbers with what you have in your retirement accounts and what you can receive from Social Security.
Making Withdrawals From Retirement Accounts
When you start planning withdrawals from your retirement accounts, you need to understand how taxes work on them and what the age requirements are.
Some retirement accounts, like 401(k)s, are tax-deferred accounts, which means that you’ll owe taxes on what you withdraw.
Other retirement accounts, like Roth IRAs, are made of taxed income. Since these funds were already taxed before growing in the account, they are not taxed when you make withdrawals.
Understanding how taxes work for your retirement accounts will help you plan your withdrawals and anticipate your taxes each year.
You can start making withdrawals without penalties from your retirement accounts at age 59 and a half.
Everyone is required to take a required minimum distribution by April 1 a year after reaching age 70 and a half. The required minimum distribution is determined based on life expectancy and the amounts in your retirement accounts.
Meet with a financial planner or advisor to review the specifics of your situation and discuss the best option for planning your withdrawals. In some cases, making some withdrawals before the first required minimum distribution may help with tax-planning.
Receiving Social Security Benefits
You should also discuss Social Security retirement benefits with a financial advisor. You can start receiving benefits as early as age 62, but the benefit amount may be lower than it could be because you’re receiving the benefit early.
If you wait until the full retirement age based on the Social Security Administration’s Retirement Age Chart, the benefit amount is not reduced.
Additionally, if you’re still working when you begin collecting, your benefit may be reduced if you make over a certain amount.
Deciding when to start receiving Social Security retirement benefits depends on your situation, including how long you want to work, your financials, and your health. Whenever you decide to start receiving Social Security benefits, be sure to apply four months in advance of that date.
Additional government programs, like Supplemental Security Insurance, can also help you with living expenses.
Enrolling in Medicare
While there are some exceptions that allow you to become eligible for Medicare earlier, you become eligible for Medicare when you turn 65 years old. Your initial enrollment period (IEP) starts three months before your 65th birthday and ends three months after your 65th birthday. If you retire from the railroad, you may automatically be enrolled.
During this first enrollment period, you do not have to worry about passing an underwriting process or being charged more or denied for pre-existing conditions. Take advantage of this time to research your options and make an informed choice.
You can choose to enroll in Parts A and B (Original Medicare) only, or add on either Part C (Medicare Advantage Plan) or D. Original Medicare is run by the government and includes Medicare Part A, hospital insurance, and Medicare Part B, medical insurance. You can visit any doctor in the country who accepts Medicare. Enrollment is managed by Social Security.
If you enroll in Medicare Advantage, you’ll still have A and B, but you may be able to get additional benefits. These plans are managed by private health insurers and are similar to other private health plans. For example, these plans have networks of health care providers. Some also offer dental, hearing, vision, and prescription drug coverage.
As you decide the direction you want to take when you enroll in Medicare, consider Medicare Part D (prescription drug coverage) and Medigap. You cannot have Medicare Advantage, Part D, and Medigap at the same time. You’ll have to choose between Medicare Advantage only, Medigap only, Part D only, or Medigap and Part D.
Part D plans only provide prescription drug coverage. Medigap (or Medicare Supplement) plans help with out-of-pocket expenses (like copayments) from Original Medicare.
Writing a Will
If you haven’t written a will yet, now’s a good time to do it. Include your wishes regarding medical treatment if you are on life support or in a coma. The will should also identify someone who will make medical and financial decisions on your behalf if you become unable to make them for yourself.
The rest of your will should set forth how you want your assets distributed. If you do not put your wishes into writing, your assets will be distributed according to state and federal laws.
While it can be intimidating to create a will, it’s important because it will lift decision-making burdens from your children and caretakers. You can use online resources to create your will yourself or go over it with an attorney. Reviewing it with an attorney can help you think through potential scenarios and plan for them.
Paying for Your Final Expenses
You also need to consider how your funeral and final costs will be paid. Funerals are expensive. The National Funeral Directors Association (NDFA) found that the median funeral costs with a viewing were $6,260 for cremation and $8,755 for burial in 2017.
If you have enough savings to pay for it yourself, you need to realize that probate will delay your beneficiaries’ access to those funds. Probate is the legal process for reviewing a will or applicable laws and disbursing everything out accordingly.
You do not want to put family and friends in a financial bind when planning your funeral.
You have two main options for funding your funeral:
- You can pre-pay for your funeral
- You can buy a final expense or burial insurance policy.
If you know where you want to be buried and which funeral home you want to use, then it may be worth pre-paying for your funeral. Choose the funeral home wisely because if you prepay and the funeral home closes, you might be out of luck. You’ll also want to be sure that it’s a reputable funeral home.
Alternatively, you can buy a final expense or burial insurance policy. These policies are designed for seniors and are a kind of permanent life insurance policy. These permanent policies have lower coverage levels because they are meant to cover final expenses and funeral costs.
Once you have all these details taken care of, you’ll be able to stop worrying about problems you may encounter and how you’ll leave your loved ones. You’ll be able to maximize your time enjoying your golden years and cherish moments with family and friends.
