When I decided it was time to retire, I honestly thought I would just read books, write some, play golf and enjoy life. I wanted to leave behind all the stress, decisions and worries that I faced every day in the “working” world. Life would be grand!
Fast forward to today – sixteen months after retirement. I’ve discovered some things over the past almost year and a half. For one – retirement is definitely not for the faint of heart. Life (retirement) isn’t simple any more. There are many, many decisions we must make – many of them up front – as soon as you retire. Some come back each year like a bad summer heat rash. 🙂
The purpose of this article is to help you navigate through some of those decisions – or, at the very least – know that you have to MAKE those decisions.
Are you ready for the ride?
The First Questions
How?
The first question you should ask yourself when you start thinking of retirement is – HOW? Do you have enough money saved in your 401(k)? Do you have any pensions? Are you old enough to collect Social Security? These are just a few of the “how” questions you’ll have to consider. Check out a previous article I wrote which goes into more detail about this type of planning, How Will You Finance Your Retirement?
When?
“When” depends a lot on “How,” wouldn’t you say? Our parents and grandparents usually just picked a date when they retired. Generally, they had all their bills paid off, and either retired when they reached the age of sixty-five or when they had forty years in at the company. Today, you certainly wouldn’t want to “just retire.” A lot of thought will go into your decision. For example, you should consider Social Security, when your full retirement age is, when you can file for Medicare, and what type of insurance you have or will have, for starters.
Where?
From the moment we start planning to retire, we start dreaming. We’ll retire, live in a golf course community, play golf every day . . . and life will be awesome, everything we dreamed it would be. Or, maybe you would like to move to a warm climate – Central or South America, perhaps even the Caribbean – find a community of ex-pats and live the life you’ve always dreamed. Maybe you’re a “retire in place” type of person – all your family and friends are there, so what better place to spend the rest of your life? Take a couple of minutes to review the following article before you go on: Should I Stay or Should I Go?
Decisions, Decisions, Decisions
If you’ve made it through the “How, When and Where” planning stage, you may think you’re “good to go.” No more questions. No more decisions. Retirement, here I come!
Not so fast. There are oh, so many more decisions ahead.
Social Security
I know. I touched on this in the article, How Will You Finance Your Retirement?
But, have you seriously researched Social Security? Do you know your full retirement age? Will you need Social Security to make it? Will you start drawing Social Security when you’re 62? Full retirement age? Or can you defer starting until you’re seventy?
This is one of those decisions you need to be sure about. Once you start receiving Social Security, it is difficult to impossible to change your status or the amount you’ll be drawing each month. The biggest exception to that is if your spouse/partner dies before you – you will need to decide if you will replace your SS with theirs or continue to receive yours. (Note: as the survivor, you can only receive ONE Social Security payment per month – either yours or your spouse’s/partner’s.)
If you have questions about your situation, I suggest you log on to the website, http://www.irs.gov and set up your own account if you haven’t already. You can get a lot of information there. You’ll find your full retirement age, if you didn’t already know it. You can get estimates of what your Social Security benefits will be if you retire at age 62, 65, 70, and every age between them.
If you need to talk to someone on the phone about your individual situation though, (which I highly recommend), contact someone in your local IRS location. It can be very difficult to get through to the general IRS number and you’ll get better service from your local people. (But I didn’t really say that.) 🙂
Alphabet Soup (aka Medicare)
First of all, are you sixty-five yet or close to it? If so, you will qualify for Medicare and need to sign up for Part A. You have a seven month period around your 65th birthday to sign up. Let’s say your birthday is the 15th of May. Starting the first of February (3 months before your birthday) until the end of August the same year, you can sign up. If you miss that window, you will incur penalties (potentially for the rest of your life) and you do not want that! Even if you are still employed and have no plans to retire yet, you STILL need to sign up within that seven month window for Medicare. You don’t have to start using Medicare until you quit work if you don’t want to. But. You. Still. Have. To. Register.
Once you reach the age of 65 and are retired, Medicare will be a major part of your health care. You must do the research to discover:
- for which type of insurance do you qualify
- the type of coverage you want and/or need
- how much coverage you can afford
For more information about Medicare, see the related article, Medicare Alphabet Soup
Federal Taxes
Did you think taxes would be easier or lower when you retire? Guess again.
I’ve always heard that taxes are lower when you retire, which is why the 401(k), 403(b), 457, etc. got such a good rap. They are still a good idea, please don’t get me wrong. But just because a good portion of your distributions from your 401(k) are taxed at a lower rate, doesn’t mean there’s NO tax on your distribution.
But, there were other reasons our parents paid fewer taxes when they retired. They:
- had their homes paid off
- probably didn’t plan to travel around the world
- didn’t plan to keep their standard of living at the same level as when they were working
The old guidelines assumed that you would only need 70 – 80% of your pre-retirement income once you retire. Baby-boomers today aren’t taking that pay cut. Do you really think you are going to scale back THAT much when you retire? If you’re of that same mindset, then guess what – your taxes probably won’t go down much from what you pay now – providing you still bring in the same level of income, that is.
State taxes
Depending on the state where you live or plan to live, some or all of your retirement income may be taxed. Some states tax your Social Security benefits, many do not. Several states have NO state income tax. If you will be receiving a pension from a state, county or city, make sure you check out how the state where you will retire handles taxes on that pension. Often, if the pension is from another state than the one where you live, 100% of the pension will be taxed. This can make a huge difference in the amount of money you will be able to keep.
You must take all of this into consideration because taxes could take a huge chunk out of your income.
Do you remember your first “real” job, when you were told your salary would be $30k per year? You planned out exactly how you would spend that money. Then you received your first paycheck and found out taxes (federal, state and local), insurance and all your other benefits were subtracted, leaving only half of what you thought you were making. How could you live on that? Exactly!!
Wills, Planning Your Estate, etc.
Don’t even get me started on this subject – we still don’t have our “ducks in a row.” I KNOW we need to prepare a will at the very least. We’ve kicked around having living wills, estate planning, etc., etc., etc. I’m sure this will be the topic for at least one article – maybe more than one. It’ll probably be a work-in-progress type of article, who knows? I promise to keep you updated if and when we make progress.
Paperwork and clutter
I know, this may seem random, but paperwork! It’s yet another instance of questions you have to answer.
Is anyone else overwhelmed by how much paperwork you accumulate over fifty, sixty or seventy years? I have to tell you, every time I walk into our offices (we each have our own “office” at home), I’m overwhelmed by what we need to gather, streamline or just plain throw away. Oh, and I haven’t even looked in the basement for the past six months because I know there’s even more down there that needs to be done.
I’ve read about Swedish Death Cleaning – you know throwing stuff away so your kids don’t have to after you’re gone. Honestly, I hate the title, but I totally “get” the concept. We have been cleaning out my mom’s house since she is in Assisted Living now. I can’t imagine my kids having to go through all our “stuff” when something happens to us. I know, I know, I need to do it. Honestly, it’s on my TO DO list.
Next Steps?
So . . . with all these topics, pick one and get started. Do the research – on the web, by making a phone call or two, talking to already-retireds. Buy a book. Whatever it takes to get going.
Have you started your planning? If so, leave me a comment below and tell me how far you are in your plan. Have I missed something?
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