Planning for retirement at any age can be difficult. Still, there are certain steps to take when you’re in your 60s and beyond to make sure you’re ready for those golden years.
Key points to remember
- Many people choose to continue working past retirement age for extra income or to stay engaged.
- If you were born in 1960 or later, the full retirement age for Social Security benefits is 67.
- You can enroll in Medicare at age 65 whether you are retired or not.
- Minimum required distributions for traditional IRAs and 401(k)s start at age 72.
At one time, the common age for retirement was 65, but times have changed. Even the Social Security Administration (ASS) raised the age at which full retirement benefits are available. Additionally, there has been a change in defined benefit plans at defined contribution plans in many company-sponsored plans.
Compounding these changes is the fact that many savings programs do not produce projected returns. It’s easy to see why many people may need to postpone their retirement.
Of course, even if you are financially secure, turning 65 doesn’t always mean it’s time to retire. Many 65-year-olds love their jobs and want to keep working. Nonetheless, there are a few things to consider and consider when planning for retirement in your mid-60s and beyond.
Determine your retirement readiness
If your employer’s policy is to offer retirement at age 65, ask yourself if you are really ready to quit psychologically and financially. If not, consider whether you want to ask your employer to let you work a few more years or whether you want to be hired as a consultant.
Ideally, you will at least one year before turning 65, as some employers begin the retirement process earlier. Many employers are now focusing on hiring and retaining experienced, “know the business” employees to bolster their intellectual banks.
By remaining employed, you will not only continue to receive a stable income, but you will also continue to receive health coverage and other benefits offered by your employer. On the other hand, the consultant route gives you more flexibility and could allow you to have a more active retirement.
Create a retirement budget
Retirees who have saved for many years may feel that reaching retirement age means it is time to enjoy the fruits of their labor. Fair enough, but the risk is that people can go too far and spend it all in a few years.
To avoid falling into this trap, budget your expenses. Be sure to include any new costs you expect to incur, such as additional travel. This will help you realistically determine how easily you can afford some of these future plans.
Once you’re out of work, a budget is even more important because your income will likely come from your savings, social security, and whatever. Pension plans you may have.
According William DeShurkoInvestment Manager at Fund Trader Pro: “An easy way to budget is to pull out your latest payslips. Look at the net amount of pay after all deductions have been made. Convert it to a monthly number. Add or subtract amounts that will be different in retirement. Usually, this number doesn’t change much. Instead, it increases to account for more travel. If you have to budget for every expense, don’t retire. You can’t be in retirement. cutting it with a spending period of 30 or 40 years ahead of you.”
Decide when to take Social Security
Social Security is usually included in an individual’s financial projections for retirement. A key decision when factoring Social Security into your equation is whether you will receive full or reduced benefits.
If you were born between 1943 and 1954, you are eligible to receive full SSA retirement benefits at age 66. If you were born in 1955 or later, your full retirement is determined by how long after 1954 you were born. See the following table for details.
|Age to receive full Social Security benefits|
|year of birth||Full retirement age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and after||67|
Source: Social Security Administration
If you receive social security benefits before you reach your normal retirement ageyour annual benefits will be lower than if you waited to reach full retirement age.
If you don’t need the payments when you reach full retirement age, consider waiting until age 70 to get the maximum benefits. Waiting longer will not increase what you will receive.
“Factors that determine when it’s best to take Social Security include the historical income of you and your spouse, your age, and life expectancy,” says Marc Hebnerfounder and president of Index Fund Advisors and author of Index funds: The 12-step recovery program for active investors.
“Most healthy adults would do well to suspend their Social Security until age 70,” adds Hebner. “There are online resources for investors to help them maximize their potential Social Security payout.”
Register for health insurance
Health Insurance can be used to cover certain medical expenses instead of using your savings to cover these amounts. Medicare provides hospitalization insurance — for hospital care and some follow-up care — and medical insurance coverage for medical services not covered by hospitalization insurance.
Medicare is available for people age 65 and older. (The age may be younger for people with disabilities or permanent kidney failure.) The medical portion of the insurance is available at a prime and is optional.
If you are covered by an occupational health plan, you may not need the medical part. You can compare the costs and features of the two and decide which one suits you best. Hospitalization insurance is available at no additional cost to you, as you have already paid for it as part of your Social security contributions while you were working.
Even if you won’t be retiring at age 65, you may want to consider register for health insurancebecause Medicare can cost you 10% more if you enroll later.
Use your home to generate income
If you live in a large space, it might be time to ask yourself if you should move to a smaller house less expensive to maintain or in an area with a lower cost of living. Changing residences could provide additional funds to add to your retirement nest egg.
If you are unwilling to move or sell your home but need additional income, consider whether the risks of a the reverse mortgage is suitable for you. In a reverse mortgage program, a lender uses the equity to your home to provide you with tax-free income.
Before applying for a reverse mortgage, be sure to ask as many questions as possible, including the amount of fees you’ll pay, mortgage terms, and your payment receipt options.
Manage your income during retirement
If you need to draw income from your savings to fund your retirement, take steps to ensure you minimize taxes and maximize what you can keep. Your unique financial profile will determine the best time to use certain types of income.
Generally speaking, withdrawals from tax-deferred accounts such as Traditional IRAs and employer-sponsored plans should occur in years when your tax rate is lower. This will help minimize the amount of income tax you owe on these amounts.
Take the required minimum distributions
Of course, if you are Required Minimum Distribution (RMD) age, you must satisfy your RMD amounts from these accounts, regardless of your tax rate.
For years, the RMD age was 70 and a half. The SECURE Law, which became law in December 2019, increased it to reflect increased life expectancies. You now have until age 72 to start taking RMDs from your traditional IRA and 401(k) plans. However, if you miss an RMD, you will incur a 50% penalty on the amount you should have withdrawn.
Keep in mind that Roth IRAs do not have RMDs.You can keep your money in a Roth for as long as you want and transmit the entire account to your beneficiaries.
You’ll probably read lots of advice on when to retire and how to manage your income. However, one thing to remember is that there is no one-size-fits-all solution.
Work with a financial planner or a pension advisor can help you design a solution that suits your needs and income. Ideally, start planning for your retirement as early as possible and remember to rebalance your investment portfolio as often as necessary.
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