Moving from the workforce to retirement can be a bumpy transition, but it doesn’t have to be.
If you’re wrapping up your working years, a little pre-planning can ensure a smoother transition into retirement and set you up for a more secure post-work lifestyle. Consider taking the following steps before you head out of the office for good.
- Take advantage of workplace retirement benefits. Catch-up contribution rules allow workers ages 50 and older to put more money in their 401(k) accounts—as much as $24,000 in 2016.
- Check your vesting. If you aren’t fully vested in your retirement account before you leave, you might get to keep only a portion of your employer’s retirement contributions—or sometimes none at all. If you’re within a few months of becoming vested, sticking around a little longer could save you thousands.
- Consider a roll over. Consolidating your retirement accounts can make it easier to keep track of them, and moving your money to an IRA can sometimes give you more investment options and lower fees. However, if you’re leaving your job between the ages of 55 and 59 ½, it might make sense to leave your money where it is for now. Penalty-free 401(k) withdrawals are allowed starting at age 55 when the 401(k) is associated with a job you leave at that age or later. If you roll the funds over to an IRA, though, you’ll pay a 10 percent early withdrawal fee on distributions taken before age 59 ½.
- Set up new health insurance. If you’ll lose your group health insurance plan when you leave your job, you’ll need to secure new coverage. If you’re 65 or older, you can sign up for Medicare. To avoid permanently higher Medicare Part B premiums, be sure to enroll in the seven-month window around your 65th birthday or within eight months of leaving your employer’s group coverage. If you’re not yet 65, look into purchasing health insurance through your state’s health care exchange.
- Make a Social Security plan. Payments are permanently reduced if you claim Social Security before your full retirement age, which is 66 for people retiring in 2016. Retirement payouts increase if you delay claiming after your full retirement age, up until age 70. Check out ssa.gov/myaccount to create a My Social Security account and get a personalized estimate of the amount you’ll receive by claiming at various ages.
- Don’t forget required minimum distributions. After age 70 ½, you’re required to take annual withdrawals from your traditional retirement accounts. Not doing so can result in hefty IRS fees. Not 70 ½ yet? You can start taking distributions from your 401(k)s and IRAs now, which reduces the required minimum distribution later on in life, when the income tax expense might be more difficult to pay.