Congratulations! After years of hard work, you've made it to retirement! Here are some things to consider to help keep your retirement running smoothly.
Consolidate your retirement accounts. If you’re like most people, you’ve saved for retirement in multiple ways, including employer plans and IRAs. Now, it may make sense to consolidate all your savings into one account, which offers several benefits:
- Less administrative hassle, especially when it comes to required minimum distributions
- Easier rebalancing
- No overlap when developing a diversified portfolio
I can help you decide on a consolidation plan that makes sense for you.
Transition your health care coverage. Activate your retirement health care coverage, whether it’s an employer-provided plan, COBRA, Medicare, or a temporary policy to bridge the gap until age 65.
Calculate your retirement income paycheck. Take a final tally of your different sources of retirement income and determine how much will need to come from your investment portfolio and IRAs. In most cases, it makes sense to withdraw from your taxable accounts and allow your traditional and Roth IRAs to continue to grow tax deferred.
Unfortunately, some retirees don’t pay enough attention to making their retirement resources last the rest of their lives. Although it may seem logical to spend all the income generated by your retirement portfolio and leave the principal untouched, it’s wise to reinvest enough to offset the impact of inflation on your future spending power. This is particularly important in the early years of your retirement.
Eventually, you may need to dip into your principal. But remember: when you spend the principal, you reduce the amount of investments at work for you. A good rule of thumb is to limit your withdrawals from investments to between 4 percent and 5 percent per year. We can help you determine the appropriate amount for you.
This is also a good time to evaluate how much of your retirement income you want to guarantee. Through products like annuities, you can create a guaranteed income stream without giving up control of the account balance. Please note: Guarantees extend to the claims-paying ability of the issuer.
Determine your tax withholding or quarterly tax payment. In general, your retirement benefits and withdrawals will be taxable at the federal level. They may also be taxed by your state. Social security benefits can be taxed up to 85 percent of their value, depending on your other income.
For convenience, you can have taxes withheld from your retirement benefits and IRAs. Social security benefit recipients can use Form W-4V (Voluntary Withholding Request). Otherwise, you are required to file a quarterly tax estimate based on income from all sources. A quarterly tax payment is required if you owe more than $1,000 in taxes that are not prepaid through withholding. Use the vouchers provided with Form 1040-ES to make your quarterly tax payments, due on April 15, June 15, September 15, and January 15.
Adjust your budget. It’s a good idea to keep track of your expenses over your first year of retirement and compare them with your preretirement estimates. Most people underestimate how much they will need and overestimate how much they will have to spend. By being aware of your discretionary expenses, you can plan to splurge in some years and cut back in others.
You may also wish to arrange for automatic deposit of your social security check and retirement account payments into your bank or money market accounts. And to make your retirement even more carefree, consider setting up automatic bill payment for predictable expenses.
If you want to review your retirement plan, please reach out to me. We can discuss your specific needs and situation and help ensure you are on track to continue a smooth transition into retirement!
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