By Paul S. McNulty, CFP®
Chances are, if you’re just a few months away from turning 60, you’re looking back wondering where the time went! Whether you’re planning on retiring soon or not, turning 59½ is a milestone to be celebrated. Not only does it mean you are that much closer to retirement, but there are some real financial benefits to reaching age 59½. Here are 5 things to do when you turn 59½ in order to explore the opportunities newly available to you and build a strong foundation for your future retirement:
1. Reevaluate Your 401(k)
Fifty-nine and a half is the magic age when you can start taking money out of your retirement accounts without penalty. That doesn’t mean it’s time to drain your accounts, but it does give you more options.
Use It As A Safety Net
By now you’ve probably discovered the benefits of having an emergency or rainy-day fund. Having some cash set aside gives you incredible peace of mind because you know that if you lose a job or your car breaks down, you won’t have to go into debt.
Up until now, your only real options for such a fund were a savings or money market account that couldn’t even keep up with inflation. Now that the withdrawal penalty is gone, you can use your 401(k) as an easily accessible, tax-deferred safety net. In a retirement account, you can even invest some of the money for growth, though you do want to keep some in cash for emergencies.
Make Catch-Up Contributions
The IRS allows people over age 55 to contribute extra to their retirement accounts, both IRAs and employer-sponsored accounts. Doing so will not only build up your retirement savings, but it can lower your taxable income. A lower income can keep you in a lower tax bracket and make you eligible for more tax deductions, which saves you money on taxes.
Consider An In-Service Rollover
This can be an opportunity to access potentially better investments that are not available to all workers. Usually, you have 15-20 options, (1) compared to the seemingly infinite options available on the open market. Once you reach age 59½, you may be eligible for an in-service rollover, which allows you to move 401(k) funds into an IRA without penalty even while you still work for the same employer.
This is a very unique opportunity to access better investments that is not available to most workers. Not only do you have more investment options within an IRA, but it also gives you greater flexibility and more control.
2. Track Your Spending
One of the difficult things about planning for retirement when you’re younger is that you likely have no concept of what your income needs and spending habits will be so far into the future. While you still may not be planning on retiring for quite some time, it’s close enough that you have a better grasp on what your needs will be.
Now is the perfect time to start tracking your spending in order to create a retirement budget. Having a detailed budget for retirement will help you determine when to retire as you will be able to see the trade-offs between working longer and the lifestyle you’ll be able to afford in retirement.
3. Take Care Of Your Health
Now is an important time to be thinking about your healthcare. It’s easy to assume that it’s safe to retire now that you have access to all of your retirement savings or even if you wait until you’re 62 and can start receiving Social Security benefits. The mistake that people make when retiring early is forgetting about healthcare.
Even though you can access your money penalty-free now, you don’t have access to Medicare until you are 65. If you’re playing with the idea of retiring before 65, start researching your healthcare options today. Whether you make use of COBRA or buy an individual policy on the exchange, you need to make sure you have coverage until you reach Medicare eligibility.
4. Start Thinking About Social Security
Even though you can’t claim your Social Security benefits until you’re 62, and you may want to wait even longer if you don’t need the money right away, this is an ideal time to start creating a Social Security claiming strategy. There is no one-size-fits-all claiming strategy, so it’s best to start early so you can see how different scenarios play out, such as delaying benefits or working a few years more. This also gives you a chance to see how your Social Security benefits integrate with your other retirement assets to create a synchronized income plan.
5. Consult A Financial Professional
As you near retirement age, there is a lot for you to think about. In the coming years, you will be making a lot of major decisions that will affect you for the rest of your life. In times like these, it’s best to consult with an experienced financial professional.
At Boston Metro Advisor, we have worked with many people in your stage of life. We help them evaluate their goals, analyze their options, and come to decisions they’ll be happy to live with for a lifetime. Our financial software can map out all kinds of different scenarios so that you can enter into retirement with a solid Plan A, Plan B, and beyond. If you could use an expert guide through this season of life, contact us for a complimentary consultation by calling (781) 995-0253 or email me directly at [email protected] today!
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
In-Service Rollovers mentioned may not be suitable for all investors. Be sure to contact a qualified professional regarding your particular situation before electing an In-Service Rollover. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or loss.