What will you do about healthcare?
Choosing a health insurance plan is one of the biggest decisions you will need to make when you turn 65, whether you decide to retire or not. Medicare benefits for seniors begin at age 65 for most people. This makes it easier to retire at 65 rather than at 60 or 62.
However, Medicare will not cover all of your healthcare costs. It comes with many costs that you will be responsible for paying yourself. For example, there is a deductible of $1,484 per benefit period for hospital stays in 2021. You may have more than one benefit period in a year.
To fill these gaps, many retirees buy a Medicare supplemental plan (also known as a Medigap policy) or a Medicare Advantage plan. A Medicare supplemental plan pays after Medicare, while a Medicare Advantage plan pays instead of Medicare.
You may not need one of these plans if you have retiree health insurance or insurance through a working spouse.
In addition to the basic health care plan, you will also want to think about how to handle long-term care costs. These costs can add up as you age or as your health issues increase, and they are not covered by most health care plans.
Long-term care is not just medical care. It includes the need for help with daily living activities. As you age, you may need someone to assist you with cleaning, cooking, bathing, and dressing.
Many people need this type of help as they get older. You can either apply for long-term care insurance or pay for this type of assistance out of your savings when you need it.
Will you start Social Security now or later?
Take some time to compare starting your Social Security payments at age 65 versus waiting a few additional years. Your full retirement age will be at 66 or later. If you start receiving payments before your full retirement age, you will receive a reduced benefit.
If you wait until after your full retirement age, you will receive a higher benefit. The amount you get will increase the longer you wait. At age 70, the increase stops, so that is the latest time you should wait to start your Social Security retirement benefits.
Whether it makes sense to wait depends on your personal financial situation. One thing to consider is that if you are married, this higher benefit becomes a survivor benefit. This can turn into a kind of life insurance for the spouse who lives longer.
Should you consolidate your IRAs?
If you have money in a retirement account like a 401(k), you will need to decide if you want to roll that money over into an IRA.
It is easier to manage your savings if you consolidate all of your retirement accounts into one IRA account. If you decide to do so, you will need to choose a bank, credit union, or other financial institution to use. You can also hire a financial advisor to help you.
IRA accounts must be kept in separate names. This means you cannot consolidate your retirement accounts with your spouse’s or partner’s accounts.
However, you can make sure to name each other as the beneficiary of the accounts. This way, you will inherit each other’s accounts upon the death of the other partner.
Do you…
Should You Take Withdrawals Now or Later?
The IRS rules state that you must begin taking withdrawals from your IRAs and other qualified retirement accounts at least by age 72. These withdrawals are known as required minimum distributions or RMDs.
You can withdraw funds before this age. For tax reasons, it may make sense to do so at times. If you’ve delayed Social Security and/or have a younger spouse, there are often significant tax planning opportunities between ages 65 and 70.
If your taxable income is low during these years, it may be wise to withdraw funds from your IRA. This could even help you save on taxes in the long run.
You might want to ask your accountant or tax preparer or retirement planner to run some tax projections for several years. This can help you see when it makes sense to start withdrawing funds.
Do You Need Professional Advice?
Many people choose to hire a financial planner or investment advisor when planning for retirement.
In many cases, an independent retirement planner can help you minimize taxes during retirement, and can advise you on when to start taking advantage of Social Security benefits. They can also show you how your savings can generate income even after you’ve retired.
If you are considering investments like annuities or financial products like reverse mortgages, speak to an advisor first. They will be able to help you make the best choices for maximizing your income, minimizing taxes, and living your retirement years as comfortably as possible.
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Sources:
Medicare.gov. “Medicare Costs at a Glance.”
American Council on Aging. “Answers to All of Your Questions About Medicaid Long Term Care.”
Social Security Administration. “Retirement Benefits,” Page 4-5.
IRS. “Retirement Topics—Required Minimum Distributions (RMDs).”
Source: https://www.thebalancemoney.com/how-to-retire-at-65-2388815
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