4. Plan for Extra Retirement Income
Although retirement is often thought of as a time to kick back and relax, most people find themselves as busy as they ever were, though doing different things. For many, staying busy also means earning extra income. Some people buy and manage investment property. Others turn a hobby into a small business. Still others get a part-time job, both for the money and the social contact.
Managing extra income during retirement could have tax consequences. If for, example, you take Social Security benefits and continue to work those benefits might be lowered depending on your age and how much you earn. Working during retirement could also bump you into a higher tax bracket, particularly if you are subject to RMDs.
5. Don’t Forget Your Partner
Retirement for couples is a joint project and can be complicated. There are timing issues to ensure that you and your partner both gain maximum benefit from Social Security, including those specifically related to spousal benefits.
There are personal and emotional issues as well. If, for example, one of you keeps working while the other retires, how will household management change? On the other hand, the huge life changes of retiring at the very same time can also be unnecessarily stressful for a relationship.
In the event of a divorce, you may be subject to a qualified domestic relations order (QDRO), which could require you to split your pension or retirement savings with your ex-spouse.
6. Mind the End Game
For most people, age 50 is the beginning of the retirement end game. Ideally, you will start by fortifying your nest egg with catch-up contributions. You will also need to review your investment mix more frequently to make sure you have the right combination of securities to mitigate risk while ensuring sufficient growth.
In the last year or two before you retire, you will need to review both healthcare and home-repair needs and see that they are completed while there’s still a salary (and, one hopes, employer-sponsored health insurance) coming in.
This may also be a time to make charitable contributions that will be more beneficial tax-wise before your income declines.
Finally, you will need to pay attention to the early years of retirement, before RMDs kick in and your taxable income potentially sees an increase.
The Bottom Line
The road to retirement includes setting goals, timing, taking advantage of retirement savings options, understanding the impact of taxation and tax benefits, planning with a partner (if you have one), and staying on top of it all when you actually get there. You’ll need to monitor your progress every step of the way and make adjustments when needed.
If you take the six steps above, you should be able to head into the next stage of your life well prepared and funded.