Your Retirement Planning Journey, Part 4: How to Retire

After years spent preparing to retire, it’s understandable if you didn’t ponder how to actually do it. Follow along for a brief retirement primer.

Make it Official

There are some housekeeping items in the leadup to your retirement date — many of which might feel like homework — but they are important to making a smooth transition.

For example, that tax you’ve had deducted from your paychecks for decades? Beginning at 62, you can begin recouping some of it. You can apply for your Social Security benefit up to four months before your desired start date. Applying for your benefit can be done online, by phone or in person at a local Social Security office. Remember, if you take your benefit before what the federal government deems your “full retirement age,” you will only receive a partial benefit. The full retirement age is 65 for those born in 1937 and earlier, 66 for those born between 1943 and 1954, and 67 for those born in 1960 or later.

Additionally, most people are eligible to sign up for Medicare when they turn 65, with the initial enrollment period beginning three months before the month you turn 65. Also consider supplemental plans for prescription drugs or a health savings plan, if necessary for you or your family.

As obvious as it sounds, be sure your employer is aware of when you plan on retiring well ahead of time. There will likely be agreements to sign regarding the end of your employment and benefits. It’s also possible there will be some benefits that will carry on, such as life insurance, gym memberships or discounts on items like cellular plans. Understand where those items fit in your budget.

And for the self-employed, have your succession plan in place and formalized. An attorney well-versed in business transitions likely will be able to help draft the proper legal documents to facilitate the succession, be it a sale or formally transitioning the leadership role while retaining an advisory position.

Dip into Savings

For many retirees, the funds built in their retirement savings accounts over the previous decades will play an important role in their income over the coming years. Ideally, you won’t exhaust the funds — after all, retirement can last a long time, and you may want to leave behind something for heirs — so be cognizant of how you make use of the accounts.

• 401(k)s & IRAs: If you have an employer-sponsored 401(k) plan, there are multiple options for taking distributions and using it. Many will rollover the account into an individual retirement account (IRA), which often presents more investment options than 401(k)s. You can, however, leave the 401(k) alone and begin taking distributions from it without penalty at age 59½, even if you have yet to retire. If it is a Roth 401(k), in which you’ve been making contributions post-tax, the distributions will be tax-free. Many of the same rules apply to IRAs, although there are more nuances when these accounts are inherited, so consulting with a wealth manager can help sort through any confusion.
• RMDs: A Required Minimum Distribution, or RMD, is the minimum amount someone with a traditional (tax-deferred) IRA or employer-sponsored retirement account must withdraw annually. RMDs typically begin at age 72 (73 if you reached 72 after Dec. 31, 2022). For IRA owners who don’t require the income from these taxable distributions to maintain their lifestyle, there are alternative strategies to avoid the tax hit, including a Qualified Charitable Donation, in which a donor can instruct their IRA trustee to make the required distribution directly from their account to a qualified charity. The IRS provides worksheets to calculate your RMD.
• Distribution options: Determine how you want to receive your distribution. You likely will have multiple options. Electronic funds transfer to your bank checking account? Paper check? Transfer to non-retirement savings account?

Build a Budget

This isn’t the first time you’ve heard this piece of advice if you’ve followed along in this series, but it’s just that important. Regardless of whether your monthly income is superfluous or shoestring, know what your expenses are, ensure you’re able to cover them and adjust your spending when necessary. The idea is to make your retirement savings last and potentially even leave something behind for your heirs.

Enjoy Yourself

The journey to retirement was likely a long one that required sacrifices, big or small, to comfortably reach the end. Your next stage in life is called the “golden years” for a reason — because it’s the time to enjoy the fruits of your labors. So, don’t forget to pat yourself on the back for a job well done, kick back and relax.

If you’re still years away from those days, check out the rest of our series (Part 1, Part 2 and Part 3), or connect with one of the experts at F.N.B Wealth Management.