Pat Sterner, who runs his own business consulting firm for nonprofits in Duluth, Minn., is keen to retire and spend more time kayaking on Lake Superior. In the summer, she says, her neighbors “always knock” to get her out.
But even though she wants to take on fewer customers, she’s not ready to close the store just yet. Ms Sterner, 66, said: “My kids laugh and say, ‘You’re really retired, aren’t you?’ I want to keep the door from cracking. “
Ms Sterner’s worries – about having enough money, leaving the business she built – reflect millions of people who are close but not ready for full retirement.
For many people, reaching retirement age is not a simple matter of two weeks’ notice. You may want to lengthen your career or downsize your work or business life. If you can, you may want to keep working until you’re 70 (and beyond), when you’ll receive the largest Social Security payment possible.
These bettors are planning to go slow to arrive at a time when they are no longer active. What’s involved is a subtle jigsaw of decisions, nesting egg rearing and financial calculations. This temporary period is also a meaningful time for reflection and short-term planning.
About 55 million Americans are now 65 or older, with those born during the peak of the baby boom reaching that critical age this year. As the combination of the pandemic, job losses, inflation and higher healthcare costs continue to afflict retirees, millions are continuing to work while they transition into retirement. completely. Whether you’ve chosen your day off work or are weighing your options, there are several issues to consider.
Social Security Benefits
The age at which you get Social Security is important for tax and portfolio planning, so let’s run some numbers on benefits at different ages. The good news is you won’t be taxed with Social Security “Income Penalties” if you are working and receiving benefits on or after age 66½, which is for most people what the Social Security Administration calls full retirement age. Of course, you can start receiving benefits anytime after age 62, but the earlier you retire, the lower the monthly payment will be.
The regulator reviews your best earnings years and forwards to the age at which you’ll take them to calculate your monthly check. While many financial advisors advise their clients to wait as long as possible to activate Social Security, only a few do. About 5 percent of those surveyed Last year wealth manager Schroders said it took Social Security at age 70, when the highest benefits can be paid. That often leaves a void that needs to be filled.
Remember that Social Security gets complicated when you’re looking at spousal benefits, which are often as much as half of other beneficiaries main insurance amount, or the amount a person will receive at full retirement age. You can apply for spousal benefits starting at age 62, or you can wait to apply later to get more benefits. It is also possible to withdraw a higher payout based on own lifetime earnings record. You will need to run some numbers to see how to best maximize the payouts. Divorced peoplemay also qualify for spousal benefits under certain circumstances.
You also need to do some Medicare plans before you turn 65. There are a few plans to know, so spend a little time on Medicare.gov. Also note that Medicare Decentralized premiums – there are six levels – and based on income: The more you earn, the higher the premium. The status of your tax return is also important in the valuation.
Of course, no part of Medicare offers 100% coverage, but you can buy Additional Medicare insurance, known as Medigap, through private insurance companies. Insurance fees varies greatly, depending on how much money you want to cover, your age, and whether or not you smoke. Medicare Advantage plans may also cover some out-of-pocket costs.
At least, estimate your benefits and out-of-pocket insurance costs across ages. You need to strike a balance between maximizing Social Security and tapping into other savings to reach your desired short-term retirement date. Another important factor when planning Social Security: your health and longevity. People who can wait until 70 are generally in relatively good health and do not face serious chronic illness.
“Thinking carefully is your family history and longevity,” says Nicole Strbich, a certified financial planner with Buckingham Advisors in Dayton, Ohio. “We incorporate Medicare planning with our clients as part of their retirement conversation. Understanding when it’s necessary to apply for benefits and the expected costs – the expected inflation rate for those costs – and the added costs for those with higher incomes, is important components of a retirement plan. ”
A phased retreat
Once you’ve run some numbers on Social Security and Medicare, you can create a timeline. Your employer can even help you with “staged” retirement plans, in which you gradually reduce your working hours until a certain year.
Responding to the lingering trend of employees working over the age of 65, these plans take in those who are not ready to retire completely. According to Bureau of Labor Statistics data.
The reasons for delaying retirement are innumerable. In many professions, improved life expectancy means being able to work longer. Many people find meaning in work, so they want to move on. Others may need to save more as a defined benefit guaranteed pension has become the exception and not the rule. Many workers simply want to take advantage of the additional annual money they can save on 401(k) style plans.
While phased retirement plans are increasingly desirable in the workplace, they are also rare. Only about 15% of employers offer some form of phased retirement, with about 6% offering a formal scheme, Human Resource Management Associationalthough you can negotiate a phased plan yourself.
Financial support your way
Planning is essential. One of the first items Miss Sterner of Minnesota evaluated Sam Brownell, an executive financial analyst with Stratus Wealth Advisors in Kensington, Md., is her income and expenses. “What are my expenses and how can they change?” was one of the first questions they needed to answer and she’s still trying to answer.
In terms of income, she also needs to know, based on her annual expenditure, how her reduced income can claim a withdrawal. SEP-IRAa retirement plan for self-employed people.
Mr Brownell (who is also her grandson) said the decision to wait until 70 is important because you will need to “look at your cash flow during that time. The increase in Social Security benefits depends on the individual’s year of birth,” he said. “For example, if you were born after 1943 and you defer your benefits to age 70, your annual increase is 8 percent per year.”
Another part of the transition is tax planning. Withdrawals from defined contribution plans like SEP-IRAs and 401(k)s are taxable at the federal level, while withdrawals from a Roth IRA are not – if you’re at least 59 and have kept funds in the account for at least five years.
There is also a tax wrinkle on the road with defined contribution plans: The Internal Revenue Service requires most people to start withdrawing at age 72 in Minimum distribution required. However, that rule does not apply to qualifying Roth withdrawals.
Converting a Regular IRA to a Roth, will generate a one-time tax bill from the IRS, possibly in order, depending on your income. Mr. Brownell recommends that workers consider this move carefully before retiring to save on taxes.
“Roth converts may have to pay lower federal income taxes during their ‘reduction’ years,” he added. Because of the tax with a Roth conversion, you’ll need to talk to your tax or financial planner or run the numbers on online calculatorto see if it makes sense for you.
Do It Yourself, or Get Help?
Of course, you can manage the transition yourself or get some professional help. Find a Certified Financial Planners Charge Only is a good start. You may be able to find a scheduler for a flat rate or hourly rate. Don’t hire anyone who wants to sell you investment products.
Lower your arms, increasing the eggs in your nest during the break is always a good idea. Because 2022, you can contribute $20,500 towards your 401(k) or other defined contribution plans. That’s $1,000 more than last year. Those over 50 can add $6,500 in catch-up contributions.
More importantly, one of your key questions should be, “What do I really want to do and how do I get there?” Whether you’re contemplating partial or full retirement, having some specific goals helps you. For Ms. Sterner, one of those goals is to spend more time interacting with her local network. “I have worked nationally and internationally my entire career,” she said. “I am finding joy in volunteering in my local community.”
Ultimately, your quality of life is the biggest factor. In Ms Sterner’s case, it involved “managing my finances, so instead of bothering the customer, I could wrap the lake trout from my kayak”.
https://www.nytimes.com/2022/02/18/business/retirement-planning-money-social-security-medicare.html How to transition to retirement