You are required to make many retirement benefit decisions in your 60s that will impact your finances for the rest of your life. When you sign up for Social Security plays a big role in how much money you will receive each month, and late Medicare enrollment could cause you to pay permanently higher premiums. The rules for retirement account withdrawals are also unusually flexible during your 60s, and only during this decade are you allowed but not required to take penalty-free distributions. Here are some of the retirement choices 60-somethings need to make.
[See: 10 Ways to Increase Your Social Security Payments.]
When to sign up for Social Security. You can claim your Social Security payments beginning at age 62, but monthly payments are reduced if you start them before your full retirement age, which is 66 for most baby boomers. You can increase your monthly payments by delaying your benefit up until age 70. “Every year you delay your Social Security benefit between ages 62 and 70 you get an increase in income,” says Justin Castelli, a certified financial planner and founder of RL Wealth Management in Fishers, Indiana. “If you can delay and supplement your Social Security with an IRA or another source of income, your payments will go up.” The optimum age to sign up depends largely on how long you live. Those who live into their 90s will come out ahead by delaying Social Security in order to claim higher monthly payments. People with health conditions who don’t expect to live into old age are likely to get more by claiming sooner. However, couples need to optimize benefits together. For example, if the spouse with the health condition was the higher earner, he might be able to secure a higher survivor’s payment for his wife by delaying his own Social Security benefit.
Setting up appropriate Medicare benefits. Before you leave your job, make sure you will continue to have health insurance to cover any ongoing conditions or new emergencies. Some people wait until age 65 to retire so they will be eligible for Medicare. If you have already started Social Security benefits, your Medicare coverage typically begins automatically. However, if you intend to claim Social Security after age 65, remember to sign up for Social Security during the seven-month window around your 65th birthday in order to avoid late enrollment penalties. If you work past age 65 and receive group health insurance through your job, be sure to sign up within eight months of the coverage ending. Those who don’t sign up for Medicare when they are first eligible might have to pay permanently higher premiums for Medicare parts B and D and could even be denied the right to purchase a Medigap policy.
[See: How to Reduce Your Tax Bill by Saving for Retirement.]
How to draw down your retirement accounts. Workers over age 59 1/2 can withdraw money from their traditional IRA or 401(k) without incurring an early withdrawal penalty. Income tax will be due on each retirement account withdrawal. The amount you will owe varies based on your tax rate in the year you make the distribution. In some cases, taking retirement account withdrawals after you retire but before you sign up for Social Security might help you remain in a lower tax bracket while paying a lower tax rate on your retirement account distributions. Withdrawals from traditional retirement accounts are required after age 70 1/2.
In addition to minimizing taxes, you also need to make sure your savings will last the rest of your life by setting up a gradual spending strategy. “Most people could realistically sustain a 3 to 5 percent withdrawal rate,” says Scott Haley, a certified financial planner and principal of Prelude Financial in Wadsworth, Ohio. “But the withdrawal rate does kind of depend on how you are currently invested, and if you are more conservative, then consider a lower withdrawal rate.”
When to leave your job. Delaying retirement gives you more time to build a nest egg and reduces the number of retirement years you need to pay for. But hitting a specific number in your retirement account doesn’t necessarily mean you are ready to retire. In addition to being a way to earn income, a job is also a place to socialize and can even be part of your identity. It’s important to start exploring other interests and create a social network outside of the office before leaving your job. However, you don’t always get to choose your retirement date. “Some people retire because they are laid off or let go,” says Karen Holden, a professor emerita of consumer science and public affairs at the University of Wisconsin at Madison. “Spouses will retire because of the health of the other spouse.” You need a plan to cope with emergencies and the ability to be flexible and make adjustments in retirement.
[See: 50 Affordable Places to Buy a Retirement Home in 2016.]
Where you will live. Retirement provides an opportunity to significantly lower your cost of living. If you can sell a large home and move into one that costs significantly less, you can quickly add cash to your nest egg. You might also be able to lower your ongoing maintenance and insurance costs. However, a move away from family and friends could eliminate your support system, and you might even need to pay for services friendly neighbors might have helped with in the past. In addition to being affordable, a good retirement spot needs to be welcoming to newcomers and provide amenities for seniors. “What is really important is having a sense of safety, community and economic security,” says Becky Yust, a professor of housing studies at the University of Minnesota. “Consider where you can live with dignity and with a support network if your physical characteristics change over time.”
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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The 5 Most Important Retirement Decisions to Make in Your 60s originally appeared on usnews.com
