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Choosing a retirement date is the final step before entering retirement. But for it to be a smooth transition, most individuals will need to coordinate benefits and potentially make last-minute adjustments to their financial planning retirement strategy.

#12 Re-thinking the Retirement Budget

Generally, retirees enjoy more free time once they retire. In many cases, that means spending more money than in working years. As retirement approaches consider re-thinking the budget to account for increased expenditures. What once was an acceptable amount of money pre-retirement may fall short when there is more free time. Additionally, holding extra cash may allow for additional flexibility as adjustments to cash flow occur.

#11 Signing up for Medicare

There are changes to medical insurance that usually occur once retirement approaches. Individuals will often need to sign up for Medicare approximately three months before their selected retirement date. One exception is if you have a spouse who continues to work and their plan is “primary.”

When signup occurs… Medicare coverage starts…
The month before turning 65 Month turning 65
The month turning 65 1 month after signing up
1 month after turning 65 2 months after signing up
2 months after turning 65 3 months after signing up
3 months after turning 65 3 months after signing up
During the January 1-March 31 General Enrollment Period July 1
Source: Medicare.gov

#10 Taking Social Security

Depending on age and need, it may or may not make sense to start taking social security upon retirement. Considerations may include income needs, market conditions, and health. However, if the money is in need, it probably just makes sense to take it.

#9 Effecting Roth conversions

Everyone loves tax-free money, but the decision to convert largely hinges on maximizing the long-term benefit of levy-free deferral. The first few retirement years may represent an opportunity to convert taxable money into Roth money.
[Tax valley]

Recommendation: How To Budget a Sustainable Retirement

#8 Diversifying stock options

It’s common for individuals who receive employer stock they believe will flourish to decide to hold shares while working. This can be advantageous for both appreciation and taxes. However, upon retirement, that can change. While everyone likes to keep some shares, being retired and “out of the loop,” it can make sense to de-risk some positions. Retirement is usually ideal because income drops, freeing up “taxable cap space.” The year after retirement may be the perfect time to unwind the business risk, pay the tax, and diversify.

#7 Timing the date

Often the actual month one retires matters. For example, someone who retires in December may pay tax on vacation accruals or other income in the same tax year as a full year of earned income. Consider deferring formal retirement to January, so those extra dollars are taxed in a new year and conceivably in a lower tax bracket.

#6 Re-thinking Risk Tolerance

The conventional wisdom says to be more conservative leading into retirement. While this is generally true because the income phase is just beginning, re-thinking risk tolerance at retirement is necessary for many plans. The recommendation is to attach a risk tolerance to each dollar’s usage point in time. Not all money is required the moment retirement comes. Much of it is likely not needed for 20 or even 30 years. Everyone will need to have some money with a long-term time horizon no matter their age. Try to attach an appropriate risk profile to a dollar’s anticipated usage point in time.

#5 Taking or deferring a pension

While this strategy is not always an option, some pensions can be deferred beyond formal retirement. Like social security, it may make sense to coordinate a start to the income a few years or months into retirement. Like social security, the decision primarily revolves around income needs, accumulated cash savings, and expenses. Additionally, economic considerations, such as a low-interest rate environment, could present opportunities for continued deferral for a possible higher payout as interest rates rise. Deferral of guaranteed income may also open up opportunities for affecting Roth conversions, selling appreciated stock, and efficient Real Estate changes.

#4 RMDs and working while retired

There is a little-known provision in deferred retirement plans (i.e., 401(k), 457s, 403(b)) that gives individuals still working (when RMDs are required to start) that allows a “working exception” to take the RMD. In some cases, it can make sense for semi-retired individuals to work to qualify for this deferral.

#3 Refinancing & home fixups

Once retired and income is no longer coming in, on paper, your profile may not be as attractive to banks as while working. Showing accumulated assets helps, but banks like to see reliable income. When applying for a loan, such as refinancing for a cash-out refi or purchase, consider holding off retirement until after the loan is in place. That way, you put yourself in the most favorable position possible to get the lowest rate possible.

#2 Having enough cash

Upon retirement, several planning opportunities may present themselves. Having the cash on hand to get by can allow one to take advantage of planning tactics and preserve the just after retirement “fun money” fund.

The cost of liquidity is a loss to inflation, but it does allow other money to be left unfettered. Individuals may find it difficult to raise cash post-retirement due to market conditions and tax constraints.

#1 Discovering self(s)

Equal to sustainability, getting what is wanted out of retirement should be mission-critical. Otherwise, what was the point of saving all that money? While this is the last topic on our list, understanding what one wants is usually the first thing to consider. It is impossible to determine the sustainability of a plan without knowing what is needed or wanted. You worked hard to build your nest egg, now is the time to be a bit selfish, voice what is wanted, and better understand what will make everyone happy.

Editor’s note: This blog offers informal investment and financial planning advice. We know nothing about your unique financial situation. The buying and selling of any financial product or security should only be considered in context. If appropriate, seek the counsel of experienced, ideally objective, financial, tax, or estate planning professionals. Past performance is not indicative of future performance.

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