The decision to leave the workforce for good is a big one.
Not only does retiring mean giving up your paycheck, but it also means changing
your lifestyle and schedule. If you're planning to retire in the new year, here
are a few moves worth making right away.
1. Set up a budget
Without a budget, you might struggle to spend appropriately,
given your new financial circumstances. Take some time to see what your new set
of expenses look like and how your bills compare to the income you have
available.
Going through that process could inspire you to make some
changes that help your financial picture improve. For example, if you see that housing
will really eat up a huge portion of your income, you may make the decision to
sell your home and downsize to a less expensive one.
2. Figure out what withdrawal rate works for your savings
Ideally, you'll be entering retirement with a decent sum of
money in an IRA or 401(k) plan. But it's important to establish a withdrawal
strategy so you don't deplete your nest egg prematurely. Think about your
investments, life expectancy, and income needs, and figure out what withdrawal
rate gives you access to adequate income without going overboard.
3. Research your Medicare-plan options
Healthcare could end up being one of your most significant
retirement expenses. If you'll be enrolling in Medicare, take some time to
review your options.
For some seniors, original Medicare, which consists of Parts
A, B, and D, is the right choice. For others, a Medicare Advantage plan could
be more cost-effective while offering better coverage.
4. Strategize about your Social Security filing
You're allowed to sign up for Social Security as early as
age 62. But you won't get your complete monthly benefit based on your wage
history until you reach full retirement age, which kicks in at 66, 67, or
somewhere in between, depending on your year of birth.
You can also delay your filing past full retirement age and
boost your benefit in the process. Think about how much money you need to get
out of Social Security to land on the right filing age.
5. Determine what taxes you'll owe
Taxes can be a huge burden during retirement, and many
senior income sources are subject to them. Take a look at your income streams,
and see which ones the IRS might get a piece of.
If you have savings in a traditional IRA or 401(k), you'll
be taxed on your withdrawals. And depending on your total income, a portion of
your Social Security benefits may be taxed, as well. It's better to figure out
your tax situation early on so you can strategize around it or work with a
professional to lower that burden.
The moves you make at the start of retirement could set the
stage for many years of financial flexibility. If you'll be retiring in the new
year, aim to tackle these key tasks right away. Doing so could spare you a
world of money-related worries down the line.
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