Making the transition to retirement
A quality retirement takes smart planning
Use this short primer to organize your transition to the next stage of your life.
Spending trends as retirement begins
How much you spend obviously has the largest impact on how much money you save. Contrary to most people’s expectations, however, spending in the initial months of retirement tends to increase rather than decrease. You now have your entire day free, and most things you’ll want to do—movies, shopping, eating out—cost money. Once you get used to your new routine, your spending will likely settle down, so don’t panic if initially you spend more than you planned.
Timing your Social Security benefits
When to take Social Security is a question that gets a lot of attention. Some of the most important factors to think about are:
- Your benefits are reduced if you begin taking them prior to your full retirement age (for most people retiring within the next few years, that would be age 66); the earlier you take your benefits (starting at age 62, the earliest permissible time to take them), the higher the reduction.
- If your benefits are reduced, the reduction is permanent and will affect your benefits for the rest of your life.
- If you delay taking your benefits, you receive an 8% annual credit—in effect, the government will pay you 8% more than your benefit at full retirement age, for every year you delay (through age 70).
In other words, if you delay taking benefits until age 67, your benefit would be 108% of your basic benefit; if you delay until age 68, 116%; until 69, 124%; and until 70, 132%.
Other benefits, such as Medicare, are triggered by filing for Social Security benefits, so understanding your options and the consequences of your decisions involving Social Security is crucial.
Assessing Medicare expenses and long-term care
If you aren’t covered by private insurance—either through your former employer or through an affinity group such as AARP, a trade association, etc.—you should understand what Medicare covers and how Part D (drug coverage) works—especially how Part D interacts with Social Security. Also, if you don’t already have coverage, look into long-term care insurance, but pay close attention to the terms of any policy you consider, notably cost, coverage and exclusions.
The months leading up to retirement are a good time to review your strategic asset allocation, especially if you expect to live off your portfolio’s growth and earnings. If you are close to taking required minimum distributions from your retirement assets, consider whether you should implement a different allocation for your tax-deferred assets and your taxable accounts.
J.P. Morgan has extensive resources to help you deal with your financial and non-financial matters. Your J.P. Morgan Securities Financial Advisor can help you think through the ramifications of many important decisions, and create with you a wealth management plan tailored to your needs.
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