Retirement is a transition into a new stage of life.
Retirees get the freedom to choose how to spend their time, but they also
walk away from the comfort of a steady paycheck and need to make important
financial decisions. Here are some retirement rites of passage.
Reaching financial
freedom. You have achieved financial freedom when you no longer need
to work to pay your bills for the rest of your life. Once you reach that
inflection point, you can leave this job or negotiate part-time work, and you
know things are going to be OK.
Having the retirement
conversation with your boss. There’s a certain satisfaction that comes
from being able to tell your boss that you’re simply not going to come into
work anymore. But other people find they miss some aspects of the job,
especially the social life they had in the office. The transition is often
easier if you have hobbies or travel plans to look forward to.
Shutting down your
work computer. There will come a moment after your stuff is packed
when you walk out of your office for the last time. You get to escape from
boring meetings and tight deadlines, but you also won’t get another invite to a
business lunch or holiday party.
The first time someone asks, “What do you do?” Most
people answer this question with their profession, but retirees need to think
of a new answer. You may want to talk about your volunteer position or an
important hobby, or have a quip ready about how you finally get to do whatever
you want every day.
Taking withdrawals
from your retirement accounts. After decades of saving for retirement,
retirees finally get to spend some of that money. But you also need to worry
about making your savings last for the rest of your life. Once you turn 59½,
there’s no longer a 10 percent early withdrawal penalty to take money
out of your retirement accounts, but you will need to pay income tax on each withdrawal
from traditional 401(k)s and individual retirement accounts. After you
reach 70½, you will be required to take withdrawals from your retirement
accounts each year. The penalty for missing a required minimum distribution is
50 percent of the amount that should have been withdrawn.
Collecting Social
Security payments. Workers pay into Social Security throughout their
entire career, and many retirees are eager to collect. However, the age
you sign up for benefits drastically changes the monthly payment you
receive. Although you can begin collecting benefits as early as age 62, monthly
payments are reduced if you claim benefits before your full retirement age,
which is 66 for most baby boomers and 67 for people born in 1960 or later.
Signing up for
Medicare. Beginning three months before you turn 65, you can sign
up for Medicare. It’s important to sign up for benefits in the seven-month
window around your 65th birthday, because premiums are sometimes increased
for beneficiaries who sign up later.
Realizing you don’t
have to be anywhere. Retirees don’t have to get up early or report
anywhere at a specific time. You’re free to linger over a second cup of coffee
and take your time running errands. But you may find that you want to make an
effort to get out of the house and be with other people.
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