Are you contemplating retiring soon?
Retiring takes considerable planning, but here are some tips to get you started on the process:
Most Americans start taking their Social Security benefit at age 62, the earliest eligible age. This is often a bad idea because, for every year you delay taking the benefit, your ultimate benefit increases eight percent.
You are eligible for Medicare during the seven-month period around your 65th birthday. It’s critical that you enroll during this period because failing to do so could result in a permanent penalty for late enrollment added to your Medicare Part B and Part D premiums.
When you hit the age of 70 1/2, you must begin taking money out of your traditional Individual Retirement Accounts. This is also true for 401(k)s and other workplace retirement plans if you are no longer working for that employer.
The first withdrawal must be taken by April 1 of the year after you turn 70 1/2.
Subsequent required withdrawals are due by December 31 each year.
Once you begin tapping into your IRAs, you will owe taxes on this money since the distributions will be treated as ordinary income.
Direct transfers from your IRA to a charity can help avoid tax on your IRA distributions. What’s more, the withdrawal counts towards satisfying your mandatory IRA distribution.
The Roth provides a variety of benefits for retirees. Distributions are not taxed in retirement and retirees aren’t required to tap into them at all.
Whether it makes sense to convert some of your traditional IRAs to a Roth is a question that you should ask a financial planner and your tax preparer.
If you think you’ve saved enough, think harder about what might happen. Grown children can need financial help. You might need a new roof or car. Stays in an assisted living facility or nursing home can drain your savings.
In addition, changes in the tax code and entitlement programs like Medicare and Social Security can happen.
And then there is the prospect of divorce. The biggest percentage of Americans who are getting divorced today are age 50 and older.
If you still have a mortgage or other considerable debts, strongly consider postponing retirement until these obligations are whittled down or completely repaid.
Preparing financially for retirement is just part of your task. You have to figure out what you are actually going to do in retirement.
You shouldn’t just assume that you would enjoy relaxing all day. Figure out ways to fill your days in advance.