Congratulations! You’re finally able to kick your feet up and enjoy the fruits of a lifetime of hard work. This list of nine tips can help you make sure the nest egg you’ve worked so hard to create will keep you safe and secure as long as you need it to.
1) Organize and simplify your financial situation
The first thing you’ll want to do is compile a list of any assets and liabilities to create a net worth statement like those found here. This will give you a clear picture of your financial situation and help you to identify consolidation opportunities like rolling an old 401(k) into an IRA or combining unnecessary checking/savings accounts with your main account to simplify your financial life.
2) Understand the tax impact of withdrawals from different accounts and develop a withdrawal strategy
Here’s a quick overview of some types of accounts and their tax impacts:
- Taxable Investment Accounts – Dividends, interest and capital gains are all taxable in the year they are earned or realized. Depending on the type of income, some of these items may be taxed at preferential capital gains rates, which are lower than standard ordinary income tax rates.
- IRA, 401(k), 403(b) Accounts – Distributions are taxed in the year they are taken at ordinary income rates.
- Roth IRAs – Qualified Distributions are non-taxable.
- HSA Accounts – Distributions at any point for qualified medical expenses are tax free. After 65, funds can be withdrawn with no penalty, but non-medical expense distributions are taxable. Withdrawal strategies are important for HSAs as once they are inherited by a non-spouse beneficiary, the entire account value is taxable in the year of passing.
3) Identify your income streams
- Social Security – You can file at any point between 62 and 70 so you’ll want to review your benefit information and filing options to determine the best filing strategy for you and/or your spouse. If you’re widowed or divorced, there may be additional filing strategies available to you.
- Pensions – If you’re eligible for a pension, review any filing options. It’s important to vet your options to pick the one that’s best for your situation.
- IRA Required Minimum Distributions (RMDs) – Starting at age 72, IRA owners are required to take distributions from IRA and 401(k) accounts, known as RMDs. The required distribution amount is calculated annually based on your year-end account balance and a life expectancy factor.
4) Create and maintain a budget
A good budget can help you review your expenditures to understand what your expense needs are. If monthly expenses exceed available income streams, you should explore ways to cut costs.
5) Explore alternative charitable gifting strategies
After age 70.5 IRA account owners are eligible to make tax-free distributions directly to charity from their accounts. This is known as a Qualified Charitable Distribution (QCD). This kind of charitable gift is included toward your RMD, so it can reduce the tax impact of your required distribution. It’s also a great way to take advantage of charitable contribution tax savings if you’re a taxpayer that doesn’t itemize.
6) Review Medicare coverage regularly
Your personal healthcare coverage needs can vary widely and will most likely change throughout your retirement years. Because of this, you should review your Medicare coverage annually to determine the impact that plan changes will have on your situation and determine if current coverage is still adequate, especially if your health has changed over the previous year. You have the option to change plans if needed during the annual open enrollment period.
7) Review your estate plan
Continue to review your estate plan documents throughout retirement to ensure that it still meets your needs as time passes. You should also regularly review your beneficiary designations on IRA and 401(k) accounts, transfer on death accounts, and life insurance policies. Since these accounts pass according to beneficiary designations and not your will or revocable trust documents, take a look at them to confirm that they are in line with your overall plan.
8) Protect yourself against identity theft and financial scams
There are many scammers using many tactics to trick people as they age – and they continue to become more sophisticated in their attempts. Here are a few rules to keep in mind:
- Never send wires or pay with gift cards over the phone to unsolicited callers.
- Do not give any personal information, including credit card numbers, Social Security or Medicare numbers over the phone to any unsolicited callers.
- Monitor your credit information by running a free report at AnnualCreditReport.com.
- Don’t hesitate to reach out to a trusted family member or your advisor if you think you’re being targeted by a scam.
9) Enjoy your retirement!
You’ve spent a lifetime building a great life for your family. Be sure to take the time to relax and enjoy, spend time with family, travel to new places, or take up that hobby you’ve never had time for.
This is the fourth and final installment in our Financial Health at Any Age series. Be sure to go back and read any articles you may have missed and, as always, we’ll be here for any additional financial information or guidance you may need.
Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. Nothing in this communication is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational, and illustrative purposes.