Thinking of retiring in 2017? It’s a major life transition that involves financial and social changes. New retirees have a myriad of decisions to make, including figuring out where their income will come from, what to do with their savings, when to sign up for Social Security and Medicare and ultimately when their last day of work is. Here are some of the important decisions you need to make in the year you retire.
Determine when to leave your job. It’s fun to dream about announcing you won’t be coming into work anymore. But the identity and social life your career provides can be difficult to leave behind. Working for just one extra year can also improve your finances. Working an extra year, even on a part-time basis, can really increase the longevity of the portfolio. Most importantly, don’t pull the trigger on retirement until you are sure and know where your money is going to come from and how much you are going to spend.
Consider rolling over your 401(k). You can often leave your retirement savings in your former employer’s 401(k) plan or move your money to an individual retirement account. The better option depends on the quality of your 401(k) plan. Alternatively, an IRA gives you the whole investment world full of choices, so generally it is a good idea to move to an IRA. Consolidating several 401(k)s from former employers into a single IRA can make it easier to manage your investments. You can also shop around for an IRA with low-cost funds, which will help your nest egg last longer.
Sign up for Medicare on time. You initially become eligible for Medicare during the seven-month period around your 65th birthday. It’s import to sign up during this initial enrollment period, because a permanent penalty could be added to your Medicare Part B and Part D premiums for late enrollment. If you work past age 65 and receive group health insurance through your job, sign up for Medicare within eight months of retirement or the coverage ending to avoid the premium penalty. If you retire before age 65, you will need to purchase health insurance from another source. Employer plans may extend coverage, but if not, then you might want to look at getting an individual policy, either through working with a broker or going to a healthcare exchange.
Decide when to claim Social Security. Your Social Security benefit changes depending on your age when you sign up. Payments are reduced if you start your benefit before your full retirement age, which is 66 for most baby boomers. You can boost your Social Security payments by delaying claiming past your full retirement age up until age 70. For every year that you delay, you are increasing your benefit by 8 percent.
Remember required minimum distributions. Eventually in retirement, if you’ve saved money in a qualified retirement plan like a 401(k) or IRA, you will be subject to the required minimum distribution (RMD) rules. Withdrawals from retirement accounts are required each year after age 70 1/2. The penalty for missing a 401(k) or IRA distribution is 50 percent of the amount that should have been withdrawn in addition to the income tax due. Your first RMD is due by April 1 of the year after you turn 70 1/2. Subsequent RMDs are due by Dec. 31 each year.