Things to Think About Before Retiring
By Mark A. Krohn, Tax Attorney & CPA, J&G LLP
Retirement is a major event in one’s life, and it should be a time you look forward to. But around half of all Americans aren’t looking forward to leaving the workforce forever — and money is a big reason why.
Even if you’ve squirreled away enough cash so that you don’t have to worry about paying the bills without a paycheck, you’ll still need to adjust to managing your financial life under very different circumstances than when an employer was giving you money each month. You want to be prepared for the financial changes retirement can bring so you’ll have peace of mind and money in the bank. The following steps can help you to get ready for retirement.
- Social Security. The earliest age you can start collecting Social Security benefits is 62, but if you retire at that age you will only get a partial benefit. You won’t be able to collect full retirement benefits until you reach your full retirement age, which can be as high as age 67. If you retire after your full retirement age you will receive a premium designed to compensate you for deferring your receipt of Social Security. Of course, you can retire at any age (i.e. age 64, 66) and if you have reached the minimum retirement age of 62 your compensation will be adjusted accordingly. Generally, the decision to retire or not can be based upon things such as your health, whether you are working, what your family would like to do, and the status of your other finances and pensions. Once you have determined you are ready to collect Social Security you can sign up for it online. Go to www.socialsecurity.gov and provide some basic information about yourself, such as your name, your Social Security number, and birth date. If you prefer you can call Social Security at 1-800-772-1213 for more information or to schedule an appointment by telephone or at your local Social Security office. Your monthly benefit is based on the amount of income you earned during your lifetime. Social Security uses the highest 35 years’ worth of earnings to calculate your monthly check. You should file at least one month and up to three months before you want your checks to start.
- Other Finances. Make sure you understand how much income you will have and where it will come from (pension, social security, retirement accounts, part-time job). Start tracking your daily expenditures and, along with your income information, create a budget. A basic rule is you should not use more than four percent from your retirement savings each year.
- Medicare. Medicare Part A covers hospitalization. If you receive benefits from Social Security you automatically get Part A starting the first day of the month you turn 65. If not, for example if you are still working, you will need to sign up. Medicare Part B covers outpatient care. If you have insurance through work, you may not need to enroll until you retire, but check with your employer to be sure. You have a seven-month window to sign up for Part B (three months before your 65th birthday through the three months following) or you will be charged a 10 percent penalty based on your premium for each year you did not enroll. The penalty is to encourage younger retirees to enroll so their premiums will help support older retirees who need more care. You may also wish to enroll in Part C, Medicare Advantage, which is similar to an HMO, and Part D, prescription drug coverage.
- Health Care. Some people may need to seek health care through a nursing home. If you plan for this in advance you have the ability to protect your property before such contingencies become a threat. For example, Medicare pays for only the first 100 days of nursing home care. After that, you must either pay for such care on your own or enroll in Medicaid. But here in New York Medicaid currently allows you to keep $15,150 if you are single, or half of your marital assets between $74,820 and $123,600 plus your home if you are married. Everything else has to be used to pay for your medical care. Clearly, it is wise to consult with a knowledgeable professional when making such plans. There are a few things you can do to protect your assets. Long-term care insurance will either cover or help pay for nursing home care, but such premiums can be expensive, especially if you enroll later in your life. You might also consider placing your assets in a trust or transferring them to your children. An experienced elder law attorney can assist you with this process. But to be protected such transfers must be made at least five years before applying for Medicaid or you will face a penalty period during which you will not be able to collect Medicaid benefits.
- Make Plans. Become involved in meaningful activities that will keep you connected to family, friends, and your community. Follow an exercise routine if you are reasonably able to commit to same. Start to develop hobbies and outside interests so that you are motivated to get out of bed every day. It is important to look after your health to assist you with an enjoyable and satisfying retirement. Maybe plan to continue to work part-time to ease yourself into retirement. Consider becoming more involved in community activities, especially if you are used to having people around you. Develop some long-term goals and some short-term goals which include all the things that you want to do. Why not establish a 1 year plan, a 3 year plan, and a 5 year plan to help assist you with accomplishing your goals.
Reaching retirement can create a lot of paperwork, but if you plan in advance you should be able to make the transition into retirement that much easier. By following the few steps outlined above you should be able to do much to ensure that you enter retirement stress free.
Mark A. Krohn, LL.M Taxation, CPA and a partner at J&G, is in charge of the Business Law Team and is also a member of the Trust & Estates Team. He can be reached by phone at our Walden, NY office at 866-303-9595 toll free or 845-764-9656 and by email.