Do This Before You Retire From Work

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  1. Plan your retirement income and budget.

Think about your short and long-term budget as you approach retirement. Short-term, you’ll receive one last paycheck, which may include back pay, vacation or sick days, commissions, or bonuses.

Furthermore, there may be a delay between when you receive your final paycheck and when your retirement income begins. You should increase your savings in the weeks and months leading up to your departure from your job. Alternatively, you could use your emergency fund to finance day-to-day expenses rather than using your credit cards.

Depending on your retirement income plan, you may receive income from two sources:

Sources of guaranteed income

  • Social Security, if you’re receiving it now
  • Pensions (defined benefit plans)
  • Annuities

Retirement assets 

  • Individual retirement accounts (IRAs), retirement plans (401(k), 403(b), and employee stock ownership plans)
  • Savings accounts (CDs, bank accounts, money market accounts)
  • Investments in stocks, bonds, mutual funds, and real estate
  • Retirement wages (example: part-time job)

  2.  Make sure you know when your benefits will expire.

Depending on the benefit, some may end when you finish work, while others may continue for a specific period. 

The following list can assist in the transition to retirement:

  • Plan checkups if you will not have dental or vision insurance when you retire.
  • A voluntary life insurance policy (purchased or provided by your employer) can be converted by contacting your benefits administrator. Instead of deducting the premium from your paycheck, you’ll pay it directly to the insurance company.
  • Health insurance and retirement:

  3.  Retirement health insurance options should be reviewed.

As you prepare to retire, make this a top priority so you won’t go uninsured. Depending on your age, you have different options.

If you’re under 65, you may have the following options:

  • Coverage for retirees through your employer.
  • A spouse or partner’s insurance policy (usually within 30 days of your termination from your job).
  • You can continue your health insurance through COBRA for up to 18 months after losing your job-based coverage. The COBRA premium is costly since you have to pay the total amount (instead of your employer covering a portion of it). As part of COBRA, you can keep your dental and vision insurance from your old job. Medicare must be applied for if you reach 65 during those 18 months.
  • A plan offered through the Health Insurance Marketplace. State-by-state availability and household income determine eligibility. Learn more at healthcare.gov.

Retired veterans have the following options:

  • Veteran Benefits Administration may be able to provide coverage for you.

Options if you’re 65 or older:

  • Coverage under Medicare. Medicare supplemental coverage and prescription drug plans are available when you elect Medicare through Social Security. The Social Security Administration must be contacted to sign you up for full Medicare benefits, even if you don’t take Social Security.

  4.  You should check the balance of your flexible spending account (FSA) and your health savings account (HSA).

Using your HSA

HSA funds can be used for future eligible health care expenses regardless of your employment status. Upon signing up for Medicare, you can no longer contribute to an HSA.

 HSA funds cannot be used for unapproved expenses.

Your FSA

When you have a balance, you lose what you don’t use, so shop for FSA-eligible items. You must submit health care claims (or dependent care) to be reimbursed by the termination date. (Your employer has its list of benefits and deadlines.)

5.  If you are eligible for a pension, you should choose it.

In the case of a traditional pension (also known as a defined benefit plan), you may need to decide how the plan will be paid out. Check with your HR contact if this benefit is available to you.

6.  Determining what to do with your retirement accounts is one of the most important things.

You can determine what’s best for you after weighing the pros and cons of your options. Consider the fees, tax implications, and when you need to withdraw money. In general, you’re choosing between two options:

A 401(k) can be converted to an IRA by rolling your savings over.

Consolidation offers the advantage of simplification, as all accounts are in one place. After retirement, you cannot contribute to a 401(k), but an IRA may offer more investment options if you have earned income. 

You should keep your money where it is.

If you retire or lose your job at age 55 or older and keep your 401(k) with your former employer, you can withdraw penalty-free between ages 55 and 59 1/2. IRS Rule 55 refers to this. (This only applies to a previous employer’s 401(k) plan.) Your company may set withdrawal restrictions.

It is also possible to withdraw all the money, but it is likely not your best option. Depending on your age and type of retirement, you may face immediate tax consequences and penalties if you withdraw all funds from your retirement plan. As a result, the savings also lose out on the opportunity for growth.

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