By Dave Coen
If you’re like me, you might draw a blank when someone asks how old you are. The older we get and the faster the time goes, the harder it is to remember what day it is, let alone how old you are!
And while in most cases age is just a number, there are a few pivotal birthdays you will want to remember. Turning 59½ is one of them. Not only does this mean you are that much closer to retirement, but there are some real financial benefits to reaching age 59½.
Here are 5 things to do when you turn 59½ to explore the opportunities newly available to you and build a strong foundation for your future retirement.
1. Explore 401(k) Opportunities
Fifty-nine and a half is the magic age when you can start taking money out of your retirement accounts without penalty. Don’t run ahead and drain your accounts, but consider what options are available to you to optimize your savings.
Make It A Backup Plan
By now you’ve probably discovered the benefits of having an emergency fund, or “safe bucket.” Having some cash set aside gives you incredible peace of mind because you know that if the unexpected happens, you won’t have to go into debt.
Up until now, your only real options for such a fund were a savings or money market account that couldn’t even keep up with inflation. Now that the withdrawal penalty is gone, you can use your 401(k) as an easily accessible, tax-deferred safety net. In a retirement account, you can even invest some of the money for growth, though you do want to keep some in cash for emergencies.
Beef Up Your Savings
The IRS allows people over age 55 to contribute extra to their retirement accounts, both IRAs and employer-sponsored accounts. Doing so will not only build up your retirement savings, but it can lower your taxable income. A lower income can keep you in a lower tax bracket and make you eligible for more tax deductions, which saves you money on taxes.
Roll It Over
The major complaint about 401(k) plans is the lack of investment options available within a given plan. Usually, you have 15-20 options, (1) compared to the seemingly infinite options available on the open market. Once you reach age 59½, you may be eligible for an in-service rollover, which allows you to move 401(k) funds into an IRA without penalty even while you still work for the same employer. Not only do you have more investment options within an IRA, but it also gives you greater flexibility and more control.
2. Know What You Spend
One of the difficult things about planning for retirement when you’re younger is that you likely have no concept of what your income needs and spending habits will be so far into the future. While you still may not be planning on retiring for quite some time, it’s close enough that you have a better grasp on what your needs will be.
Some of the very first questions I ask my clients as we look into retirement exit strategies are, “Do you have a budget of what you spent over the past year? What’s the number we need to plan for in order for you to live the lifestyle you want?” Now is the perfect time to start tracking your spending to create a detailed retirement budget. You’ll see the trade-offs between working longer and the lifestyle you’ll be able to afford in retirement, which will help you determine when to retire. This step only takes about 10 minutes a month—and I could help you with a pro-forma spreadsheet on it!
3. Avoid Health Headaches
There’s no time like the present to start thinking about healthcare. It’s easy to assume that it’s safe to retire now that you have access to all of your retirement savings or even if you wait until you’re 62 and can start receiving Social Security benefits. The mistake that people make when retiring early is forgetting about healthcare.
Even though you can access your money penalty-free now, you don’t have access to Medicare until you are 65. If you’re playing with the idea of retiring before 65, start researching your healthcare options today. Whether you make use of COBRA or buy an individual policy on the exchange, you need to make sure you have coverage until you reach Medicare eligibility.
4. Make A Social Security Plan
Even though you can’t claim your Social Security benefits until you’re 62 (which could be the worst time to take them), you may want to wait even longer if you don’t need the money right away. Now is an ideal time to start creating a Social Security claiming strategy. As there is no one-size-fits-all claiming strategy, it’s best to start early so you can see how different scenarios play out, such as delaying benefits or working a few more years. This also gives you a chance to see how your Social Security benefits integrate with your other retirement assets to create a synchronized income plan. If you’re in need of some guidance, our office is here to help work out your strategy.
5. Talk To Someone Who Knows What They’re Doing
The closer you get to retirement, the more there is to think about. In the coming years, you will be making a lot of major decisions that will affect you for the rest of your life. In times like these, it’s best to consult with an experienced financial professional.
Are you ready to evaluate your goals, analyze your options, and come to decisions you’ll be happy to live with for a lifetime? Get started by emailing me at dcoen@sageviewadvisory.com or calling 800-814-8742.
About Dave
Dave Coen is a Financial Advisor with SageView Advisory and the CEO of College Planning America. Along with his retirement financial industry experience, he is a College Planning Specialist. He works closely with individuals and families to provide comprehensive financial planning that addresses all elements of their financial picture. Learn more by connecting with Dave on LinkedIn.
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This material is designed to provide accurate and authoritative information on the subjects covered. It is not however intended to provide specific legal, tax, or other professional advice. For specific personal assistance, the services of an appropriate professional should be sought.
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