Countdown to Retirement...3 Years

countdown to retirement 3 year blog imageAt this point, retirement is clearly within reach. You are so close - just a few more years to go! Here are some items you should consider as your target retirement date draws nearer.

Review your retirement benefits, including social security. Determine your optimal age for taking pension payments. Under federal law, pension plans automatically pay out as an annuity over your lifetime, with a survivor benefit for your spouse. But you may have other options that better fit your financial needs. It may even make sense to defer your annuity to increase your benefits. The same is true for social security. Although you can begin taking social security benefits as early as age 62, the benefits are reduced if you apply before full retirement age (age 66 to 67, depending on the year you were born). You can substantially increase your benefits by delaying them until age 70.

Profit-sharing and 401(k) plans typically do not offer annuities. You can keep the account with your former employer, but the investment and distribution options may be limited. Compare your employer’s plan with IRAs, which usually offer a broader range of investment choices and allow you to consolidate all your prior employer plans into one.

Also, ask your employer about other benefits that may continue into retirement, such as life insurance, medical, vision, and dental benefits. Certain benefits are contingent upon the number of years you’ve worked for the company, so you may have to adjust your target retirement date to qualify.

Review your retirement health care benefits and costs. Many employees mistakenly believe that their employers will continue to provide health insurance after they retire. Even among employers that currently offer retiree coverage, many are reporting that it will not be available to new retirees or that the retirees’ share of the premium cost will be increased. If your employer does provide retiree health insurance as a benefit available to you after age 65, your coverage may be secondary to Medicare. Retiree health plans may not be considered “creditable” coverage under Medicare rules to avoid a Part B penalty if you fail to enroll.

Medicare serves as the primary health insurance policy for most retirees, but it doesn’t cover everything. A Medigap policy is designed to pay for Medicare copays, coinsurance, and deductibles. Also known as Medicare Supplement Insurance, it may be part of your employer-provided coverage. If not, individual Medigap policies are available. It pays to shop around, as you have a choice of several standardized benefit packages with varying prices and options. You should buy your Medigap policy when you enroll in Medicare Part B to avoid denial because of poor health. Also, be sure to take into account the cost of Medicare Part D prescription drug coverage.

Generally, you and your spouse are not eligible for Medicare until each of you has reached age 65 or qualifies as disabled. If you retire before age 65, you and your dependents may be eligible for continued employer benefits under COBRA at an unsubsidized cost. The number of months you can retain COBRA coverage depends on your state. Your employer will be able to provide you with more information about COBRA benefits.

Review and adjust your retirement asset allocation. Preservation of principal is important for the retirement portfolio, but if your returns don’t keep up with inflation, you may lose purchasing power. Although it makes sense to take a more conservative approach as retirement nears, growth investments may still have a place in your portfolio. We will tailor an asset allocation plan for you that takes into account your specific income needs, lifetime goals, and existing investments.

Review your life insurance coverage. This is a good time to consider the resources that would be available to your spouse or partner if you died. Typically, your spouse would receive 50 percent of your social security or pension annuity, but even that amount may result in a drastic change in lifestyle. Do you have enough life insurance to fill the gap?

You may be able to maintain your employer-provided life insurance into retirement. Usually, a small portion of your group term insurance can be converted to an individual policy without a medical exam. If you are in good health, you may find more options at a lower cost by shopping in the marketplace. Before your group insurance conversion option expires, be sure to consult with us to determine if you can medically qualify for another policy.

Formulate a retirement lifestyle budget. The good news is that the average retiree can live comfortably on 70 percent to 80 percent of his or her preretirement income. But most retirees find that they tend to spend more in the years immediately after retirement. Now is the time to estimate your expenses based on your retirement vision. Identify your basic expenses, such as food, housing, health care, insurance, and other necessary costs. Then, estimate your discretionary or “lifestyle” expenses, such as travel, hobbies, and so on. If there is a gap between your retirement income resources and your budget estimates, you still have time to make adjustments.

If you have questions about what steps you should be taking as you get closer to retirement, please reach out to me. Together, we can discuss your goals and formulate a plan to help you reach them!

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This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

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