There are many natural milestones we reach as we go through life, everything from graduating high school and college to making major career decisions, getting married, and having kids. But as you draw closer to retirement, the milestones ahead of you require more forethought and planning. Regardless of if you are planning to retire in 3 years or 10, there are some important actions to start taking when you turn 59½.
1. Consider Using Your Investment Accounts As A Safety Net
If you’re not thinking about retiring just yet, consider putting more money into your retirement accounts. It's important to let your money work in your favor by potentially earning some tax advantaged returns, especially since savings accounts tend to have low interest rates. In the event of unemployment or a major expense, you can dip into these accounts without worrying about paying penalties.
When you turn 59½, you can take advantage of the money in your retirement accounts without incurring a penalty. At this age, you can withdraw from your employer-sponsored plans, such as a 401(k) and 403(b), and your IRA accounts without needing to pay the 10% early withdrawal penalty. However, that doesn’t mean you should count on this money as part of your regular income just yet, especially if you haven’t taken into account the tax consequences of withdrawing. Also, depending on how old you are, you may never be able to rebuild your savings. So it’s important to save as much as possible in these accounts, but withdraw wisely and only if necessary.
When it comes to determining how much to save in your investment accounts, remember that they aren’t completely liquid, so it’s important to not over contribute. But, if given the opportunity to add more (the IRS allows those over 55 to make catch-up contributions of an extra $1,000 a year in IRAs and $6,000 a year in employer-sponsored accounts), you should consider doing so.
Another viable option to potentially improve your investment options is to look into a 401(k) in-service rollover. Many workplace retirement plans only offer limited investment choices, and some of those choices aren’t the most favorable options for your money. An in-service rollover allows you to move a portion of the funds in your current 401(k) into an IRA and gives you greater flexibility, more choices, and more control. If you are 59½, you won’t incur the 10% early distribution penalty, and you can take advantage of this little-known feature even if you are still working for your employer and contributing to the 401(k).
2. Make A Social Security Plan
Since you can start claiming your Social Security benefits at age 62, start thinking ahead now. Instead of waiting until the last minute, check your Social Security account to see where the numbers are at and determine the best time to claim benefits and how much to work in the years leading up to your full retirement age. It’s also important to consider how long you’ve worked and your lifetime average monthly earnings, which are used to calculate your benefit. In some cases, working a few extra years can have a big impact on your monthly Social Security benefit.
Social Security is complicated, so it’s important to work with a financial professional that understands the available options and can help you determine the best strategy for you.
3. Create A Retirement Budget
Creating a budget is a good practice no matter what age you are, but it’s especially important as you draw closer to retirement. Mapping out your expenses and income will help you create a few scenarios to determine if you can retire early and what your income will look like at different points in your retirement.
As for the types of budgets you want to make, consider creating a bare-bones budget (i.e., what you absolutely need to get by on) and one where you incorporate things you want to do. For example, you can cut out high transportation costs since you won’t need to work, but you can add that amount back in so you can fund your dream vacation.
Playing around with the numbers helps you to see how much you’re projected to spend as well as give you an indicator as to how much you may still need to save until you actually retire. This would be a good time to see where you can currently cut back on your budget to increase your savings for retirement down the road.
Get The Help You Need
If you’re feeling overwhelmed with planning for retirement or figuring out how to manage your finances at this stage in your life, it’s helpful to work with a professional who has worked with others in a similar situation as yours. Contact me today to learn more about how to make sure your retirement plan is working for you, no matter how old you are! Schedule an appointment today by calling (949) 221-8105 x 2128 or emailing me at [email protected].
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to make a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at [email protected].
Mike Loo is a registered representative for LPL Financial (LPL) and an Investment Advisor Representative (IAR) for Trilogy Capital (TC). Securities offered through LPL, Member FINRA/SIPC. Investment advisory services offered through TC, a Registered Investment Advisor. TC markets advisory services under the name of Trilogy Financial (TF), an affiliated but separate legal entity. TC and TF are separate entities from LPL.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.