Retiring soon is an exciting milestone and a time filled with important financial decisions. Whether you're winding down your career or leaving the workforce entirely, ensuring that your retirement savings will last throughout your lifetime is crucial. Below are six strategies and considerations — including key tax implications — to help you enjoy a financially secure retirement.
1. Assess Your Income Sources. Here are the main places your income will come from:
2. Be realistic about expenses. Generally, most retirees will have less annual income than when they were working. It might be difficult to consider a different type of lifestyle but for most people, that's the reality. Even if you happen to be a bit better financially situated in retirement, it still pays to plot out your budget. So understand your needs versus wants and adjust accordingly.
If your savings aren't enough to account for your retirement, it's time to be realistic about the situation. Some retirees opt to go back to work by choice, but others do so due to financial need. If you do a part-time or post-retirement job, check out the tax considerations of working after retirement, which can affect your Social Security benefits.
3. Consider where you'll live. Many people who are close to retirement want to relocate to places with warmer weather. And if that's the case for you, make sure to scope out the cost of living in the areas you may be considering. Get a good handle on property costs or rents in your soon-to-be hometown. If you plan to buy a new place, make sure you know the property taxes and state/local taxes for the area beforehand. The various expenses may make you reconsider where you might live.
4. Develop a withdrawal strategy. Once you turn the relevant age (currently 73), you must take required minimum distributions (RMDs) from most tax-deferred retirement accounts such as traditional IRAs and 401(k)s. Failing to do so can result in hefty penalties. RMDs are treated as ordinary income for tax purposes.
Distributions from Roth IRAs and Roth 401(k)s are generally tax-free (if holding-period requirements are met), making them valuable tools for reducing your overall tax bill in retirement. If you have both traditional and Roth accounts, you might choose withdrawals from Roth accounts in years when you want to manage your tax bracket more carefully. Roth accounts don't require RMDs during the original owner's lifetime.
5. Look to increase retirement contributions at work before you retire. An employer's plan is a great way to save. Your employer may provide matching contributions to the plan in addition to your contribution. If you're retiring in the near future, get as much out of your employer plan as possible now.
6. Plan for medical expenses. Health care costs can have a significant impact on retirees. From Medicare premiums to potential long-term care, these expenses can eat into your retirement savings if not carefully planned for.
Health Savings Accounts (HSAs) allow for tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. If you're retiring soon and have a high-deductible health plan, maximizing HSA contributions can be a savvy move.
And keep in mind that qualified medical expenses may be deducted on your tax return if they exceed a certain percentage of your adjusted gross income.
Ensuring your retirement savings last involves careful planning, smart investing and a clear understanding of tax implications. As you prepare for this new stage of life, remember that even small adjustments — such as the timing of Social Security benefits or the method of taking RMDs — can significantly impact your overall financial security. Collaborating with your tax advisor will help you make informed decisions that align with your retirement goals and your tax strategy so you can enjoy this well-earned phase of life with peace of mind.
Get in touch today and find out how we can help you meet your objectives.
