After years of diligent saving, you probably built a significant nest egg to afford a comfortable retirement, but that doesn’t mean you’re ready to put your feet up and coast through your golden years. Preparing for retirement requires having a plan in place to address your spending habits, rising healthcare costs, changing tax laws and a myriad of unexpected changes that can throw your plans into disarray. The age at which you retire will also have a significant impact on your future finances. Following are three critical factors to consider when timing your retirement right.
Social Security Benefits
You may begin claiming Social Security benefits as early as age 62 but doing so may reduce the actual payout you receive. According to the Social Security Administration, starting at this early age will result in approximately 30 percent less in monthly benefits that you would receive if you wait until you reach the full retirement age of 67. By contrast, for each year you delay benefits, the amount you receive increases by 8 percent annually.
Another factor to consider when it comes to Social Security benefits is taxes. For the most part, the benefits you receive will be subject to federal and state income taxes, depending on how much income you have from other sources and your tax filing status. It is also important to remember that although you can continue working while receiving Social Security benefits, you may receive reduced benefits when your earnings exceed annual limits.
The decision of when to begin receiving Social Security should be made under the guidance of professional advisors to ensure it reflects your unique circumstances, needs and goals.
Medicare
When you reach age 65, you qualify for Medicare, the government-backed health insurance program that can help you cover the rising costs of medical care, including stays in hospitals and skilled nursing facilities (Part A), doctor visits, durable medical equipment, outpatient and home health care (Part B), and prescription drugs (Part D). For most people who worked or have a spouse who worked and paid into Medicare taxes, there is no monthly premium for Part A coverage.
When nearing age 65, it is important to recognize all the requirements you need to follow to enroll in Medicare and avoid any gap in coverage or potential penalties. For example, you can sign up for Medicare Parts A and B three months before reaching age 65 or during the seven-month initial enrollment period (IEP) that ends three months after the month you turn 65. If you delay enrollment beyond that age because you have health coverage from an employer, the last day you can sign up for Medicare coverage is eight months after your employment ends, even if your eligibility for Medicare benefits occurs on or before you sign up for COBRA health coverage. If you become entitled for Medicare after signing up for COBRA, your individual COBRA benefits will automatically cease but may be extended for an additional three years for your dependents.
Required Minimum Distributions from Retirement Accounts
Under current law, you must begin taking annual withdrawals from certain retirement accounts when you reach age 73. These required minimum distributions (RMDs) from 401(k) plans, traditional IRAs, SEP IRAs and SIMPLE IRAs are calculated based on your age and your account balance at the end of the previous year. Because RMDs are treated as taxable income, they can push you into a higher tax bracket and expose you to higher-than-expected federal income tax liabilities as well as state and local taxes.
Advanced planning is the best way to help minimize the impact of RMDs on your finances in retirement. For example, you may delay RMDs from a 401(k) plan when you continue to work for the employer sponsoring the plan. Another option when you do not need to rely on RMDs from your IRA to cover living expenses is to transfer up to $105,000 from your IRA directly to a charitable organization or make a one-time, split-interest election to make a qualified charitable donation (QCD) of up to $53,000 to a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT) or Charitable Gift Annuity (CGA).
About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.
Sean Deviney, CFP®*, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Posted on January 14, 2025