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The finish line may be in sight, but don’t pop the champagne just yet. You’ve spent your whole life planning for retirement, and now that it’s close at hand, you might be tempted to coast. Try to resist. The last thing you want is for your retirement plans to unravel because you accidentally overlooked something.
To help ensure a smooth transition, socially and financially, here are four tips for your pre-retirement checklist.
You probably kicked around plenty of ideas about how you want to spend your retirement – whether it’s traveling more, volunteering or pursuing a new hobby. But the reality is some of us will hit retirement and struggle to find something to fill the extra of time on our hands (likely 40+ hours a week).
One way to get ahead of this is to start thinking about what you want your weeks to look like once you’re retired. What do you see yourself doing? And is it really going to fulfill you after a life’s worth of working?
If you’re still eyeing a job after answering these questions, data from the Bureau of Labor statistics indicates you’ll have plenty of peers. It projects that about 29.9% of workers between the ages of 65 and 74 will be working in 2024, up from 17.2% in 1994.
If working just to fill the time feels like a letdown, think about who you know (and like to spend time with) that could be in the same boat – now is great time to start strengthening your existing relationships with people you like spending time with. It could also be a good time to make new connections with people who are doing the things non-working you wants to do.
Think expenses are going to drastically drop just because you stopped working? Not so fast.
You might actually see an initial bump in your spending for the first few years of retirement, according to research by the Employee Benefit Research Group. Two common reasons you may be spending more than you expect during retirement:
Another source of post-retirement surprises is the taxman, particularly when it comes to pulling money from your savings. First off, you’ll want to use guaranteed income – from sources such as Social Security, pension payments, annuities and interest from dividends – to cover your essential expenses in retirement.
Starting after you reach age 72, you have to start taking requirement minimum distributions (RMDs) from several of your retirement accounts. These include traditional IRAs, SEP and SIMPLE IRAs, and your 401(k), profit-sharing, 403(b) or other defined contribution plans. Failure to do so means you may get hit with a 50% penalty on either the full amount you were required to take (if you took nothing out), or the difference between how much you withdrew and what was required.
Note: 72 is the new age requirements following the SECURE Act, which was passed at the end of 2019. If you had turned 70 ½ prior to January 1, 2020, you would still be subject to the former RMD age requirements.
Remember that Roth IRA assets are treated differently, allowing you to save them for last in your withdrawal strategy if you want. That’s because these accounts aren’t subject to RMD rules and any growth you realize in them is tax-free. So, generally speaking, the longer you leave the money in there, the more of a chance you may have to see it grow.
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