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How to Prepare and Plan for Retirement

Whether your retirement is fast approaching or decades away, it is likely that you do not spend much time pondering what will happen when you stop working. Unfortunately, many people are unable to retire when they’d like to because of their financial situation.

With careful planning, you can avoid this predicament. Planning ahead for retirement allows you to decide when and how you will retire, and whether you will continue to work. Even if you have not begun to plan, you can still start preparing yourself at any time – whether you plan to retire in the next few years, or in the next few decades. It is important to give yourself the best chance for a happy and secure future!

What to Do If You Are Near Retirement

Even if you are nearing retirement age, you still have time to plan ahead for your future.

Negotiate Your Retirement Benefits and Health Insurance

If your employer will provide you with health insurance and other benefits during retirement, you don’t have to settle for what they offer. Depending upon your employer’s policies, you can actually negotiate the amount you’ll pay for health insurance, what it covers, and whether you can keep your dental or vision plan.

Ask your HR representative to review all options available to you during retirement. Also, find out if you can structure your pension differently. This might mean taking a lump sum amount instead of an annual or monthly payment. Note that if you take a lump sum option, you may lose out on other retirement benefits, such as company-provided healthcare. Weigh your options carefully, because your decisions will have far-reaching repercussions.

Don’t Start Collecting Social Security Benefits Until Absolutely Necessary

Many people ponder when is the right time to start collecting social security benefits. You can start receiving benefits as early as age 62; however, it may make more sense to delay these benefits until you reach full retirement age, between age 66 and 67, depending on the year you were born.

If you can put off receiving social security benefits until you reach age 70, you will receive a larger monthly check. If you’ve already started receiving checks, but wish that you had waited, you can pay back what you’ve received and start receiving benefits at a later date.

Contact your local Social Security Administration office for details and instructions. Even if you delay getting social security benefits, make sure to contact Social Security to sign up for Medicare benefits within three months of your 65th birthday. Otherwise, Medicare benefits will be delayed and may become more expensive.

Save IRA Funds for Later or Convert to a Roth

You must wait until you have reached age 59 1/2 to tap traditional IRAs or to access your company’s 401k plan without incurring steep penalties, with few exceptions. Even when you can withdraw money without paying penalties, consider leaving money in investment accounts for longer periods of time so the money keeps growing.

The IRS requires that individuals begin making required minimum distributions from 401k plans and traditional IRAs (not from Roth IRAs) once they reach age 70 1/2. Keep in mind that if you develop a hefty balance, your withdrawals could put you in a higher tax bracket.

To mitigate this – especially if you plan to let your funds grow during retirement – consider converting all or part of your IRA or 401k account into a Roth IRA. This way, funds can grow tax-free after the conversion and you do not have to withdraw them upon your 70th birthday.

Of course, you have to pay taxes on the Roth IRA conversion, but you won’t ever have to pay taxes on the growth of the account, nor when you make account withdrawals. Furthermore, because you do not have to make taxable withdrawals from a Roth, you can easily pass these funds on as an inheritance if you wish.

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