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Retirement Checklist: 5 Key Steps to Plan for Your Retirement Finances

Nov 05, 2019 3 min read Karen Kroll

Key Takeaways

  • Check under your retirement accounts' hood—and bring a flashlight.
  • When to board the S.S. Benefits? You may find it's worth a wait.
  • Expecting a pension? Decide whether to life it or lump it.


You’ve worked hard for many years and are looking forward to retiring in a year or two. Now is the time to prepare your finances for this next stage. These steps may help to smooth the transition from employee to retiree.


 Transcript Opens in a new window


1. Review your retirement accounts

While you’ve been working, you’ve probably focused on growing your retirement accounts. As retirement moves closer, however, a portfolio has less time to recover from market downturns. You may want to consider the percentage of your investments that tend to be more stable (such as bonds), while retaining some growth investments to protect against the impact of inflation. 

It’s also time to understand how required minimum distributions (RMDs) vary between different types of retirement accounts. RMDs are the minimum amounts the government requires the owners of some retirement accounts to withdraw annually. If you hold a traditional IRA, SEP IRA, SIMPLE IRA or employer-sponsored retirement plan, RMDs kick in after age 72 (unless you reached age 70 ½ in 2019). You do not have to make withdrawals from the Roth IRA, but beneficiaries must do so once the account owner has passed away.

The tax implications of these distributions also vary. For instance, most distributions from 401(k) plans are taxed, because the money went into the accounts on a pre-tax basis. Qualified distributions from Roth IRA accounts are tax-free. For a distribution to be considered qualified, it generally must occur at least five tax years after the account was established and funded, and once you reach age 59½ or become disabled. Or it must be made to a beneficiary or estate after your death also after the account has been in existence for at least five tax years. In certain circumstances, up to $10,000 of a qualified distribution can be applied to buy, build or rebuild a first home without incurring a 10% tax penalty if you are under age 59 1/2.  However, the earnings portion of such distribution is still subject to income tax. 

This is also a good time to review and update, if necessary, the beneficiaries on your retirement accounts. If the beneficiary listed on an account differs from the beneficiary identified in your will, the account designation may take priority.


2. Check any post-retirement benefits available through your employer 

Are you eligible for a pension or healthcare benefits? If so, you’ll want to review the provisions with your firm’s human resources department. To minimize confusion later, any agreements should be in writing. 

If you’ll receive a pension, you may need to determine whether to take it as an annuity or in a lump sum. An annuity is a stream of payments over your lifetime; some pensions also offer lifetime income to a spouse or another beneficiary. Because the income stream extends for a lifetime, annuities generally offer security. However, they can provide less flexibility than a lump-sum payout.

With a lump-sum payout, you’ll take on responsibility for investing the funds to provide an income, as well as the risk you’ll outlive your assets.  Unless the lump sum payout is directly rolled over to an IRA or other qualified plan, it will be subject to a mandatory 20% federal income tax withholding.  If you then wanted to roll the payment into an IRA within 60 days of receipt, you would need to make up the withholding from other funds in order to keep the entire amount from being currently subject to income tax.


3. Assess when to begin taking Social Security benefits 

The monthly benefits available under Social Security increase the longer you postpone taking benefits, until age 70. For instance, if you start taking benefits at age 62, and your full retirement age (when you are first eligible for full, unreduced benefits) is 67, you’ll receive about 70% of the amount you would at age 67. If you delay benefits until age 70, you’ll receive about 124% of the amount you’d receive at age 67, per the Social Security Administration Opens in a new window. Per the SSA, the full benefit age is 66 for anyone born between 1943 and 1954. This will gradually rise to age 67 for those born in 1960 or later.

Another consideration: If you start receiving Social Security benefits before reaching full retirement age and you continue working, you may find your benefits reduced. Once you reach full retirement age, earnings don’t impact benefits.


Understand how your investments, retirement accounts and Social Security benefits will work together.


4. Determine your health insurance needs

For most people, retirement means the end of employer-sponsored healthcare coverage. Many retirees turn to Medicare. The varying plans come with a range of premiums, coverage, co-pays and other variables. 

Medicare Part A helps pay for inpatient care in a hospital or a skilled nursing facility after a hospital stay, and for some home health and hospice care. Typically, no premium is required. Medicare Part B helps pay for doctors’ and other services, and comes with a premium. If you delay enrolling in Medicare Part B, you may face an increased premium. 

Medicare Advantage, sometimes called Medicare Part C, includes Medicare Parts A and B; most providers charge a premium. Finally, Medicare Part D covers prescription drugs, and also typically requires a premium. A late enrollment penalty may be charged if you don’t enroll when you’re first eligible.  You can find more information at Medicare.gov Opens in a new window.


5. Budget for your dreams  

Once you’ve identified the expected income from Social Security, retirement accounts and other investments, it’s time to forecast expenses. In addition to estimating costs for healthcare, housing, transportation, food and other relatively fixed expenses, consider how you’d like to spend your retirement. Is your heart set on traveling? Returning to school? 

Ideally, the estimated income, assuming reasonable withdrawals from investments and retirement accounts, will cover the forecasted expenses. If not, now is the time to adjust. That may mean dialing back on planned activities, working longer or working part-time during retirement. 

How to plan for retirement

Before you make your move from employee to retiree, get a handle on the many moving parts you'll need to handle—from savings to expenses, Social Security to Medicare—and how they fit together. Please consult your tax and legal advisors regarding your particular circumstances.



Karen Kroll is a freelance writer and editor, with a focus on corporate and consumer finance. Her articles have appeared in AARPBulletin.com, Bankrate.com, Business Finance, CFO, CreditCards.com, Global Finance and many other publications.


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