Making the transition to retirement
You have worked hard to plan for the retirement you want, and are now ready to enjoy the results. But before you make the transition from full-time work to retirement, there are a few things you should confirm.
Understand spending trends as retirement begins
How much you spend 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 you may find yourself spending more money throughout the day than you would have if you were at work. Once you get used to your new routine, your spending may settle down, so don’t panic if initially you spend more than you planned.
Time your Social Security benefits
When to take Social Security is a question that gets a lot of attention. Some of the 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, full retirement age is 66. The earlier you take your benefits—age 62 is the earliest permissible time—the lower your monthly benefit will be. Sometimes, however, it can make sense to file for benefits earlier than your full retirement age if your benefit as a spouse might be higher than your own benefit.
- 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 your full retirement age is 66 and 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%. You may want to consider your longevity as well as the impact on spousal benefits if you are married when deciding whether to delay your benefits.
Your qualification for other benefits, such as Medicare, can be triggered by filing for Social Security benefits, so understanding your options and the consequences of your decisions involving Social Security is crucial. For example, if you apply for Social Security benefits before you turn age 65, you will automatically be enrolled in Medicare when you turn age 65—even if you may not want coverage because you have other health insurance.
Assess Medicare expenses and long-term care
If you aren’t covered by private insurance—either through your former employer, through an exchange, or through an affinity group such as AARP or a trade association— you should understand what Medicare covers and how Part D (drug coverage) works—and 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.
Review your investments
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, think through whether you should implement a different allocation for your tax-deferred assets and your taxable accounts.
Factors to consider include:
- When you expect to begin taking distributions from your retirement assets and for how long.
- Whether you expect your marginal tax rate to be higher or lower as you settle further into retirement.
- Whether you can fulfill your required distributions using qualified charitable distributions.
- Whether you have enough assets and income to fund your expenses even before drawing on your tax-deferred accounts.
Of course, depending on your unique circumstance, there may be other factors to consider when thinking through your asset allocation.
As you are going through this important transition, your advisor can help you think through the ramifications of many important decisions, and help you create a strategy tailored to your needs.
This material is for information purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). The views and strategies described in the material may not be suitable for all investors and are subject to investment risks. Please read all Important Information.
GENERAL RISKS & CONSIDERATIONS. Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.
NON-RELIANCE. Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.
Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.
Legal Entity and Regulatory Information. J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.
Bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.
This document may provide information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (“JPMS”). The agreements entered into with JPMS, and corresponding disclosures provided with respect to the different products and services provided by JPMS (including our Form ADV disclosure brochure, if and when applicable), contain important information about the capacity in which we will be acting. You should read them all carefully. We encourage clients to speak to their JPMS representative regarding the nature of the products and services and to ask any questions they may have about the difference between brokerage and investment advisory services, including the obligation to disclose conflicts of interests and to act in the best interests of our clients.
J.P. Morgan may hold a position for itself or our other clients which may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document. JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.
© 2021 JPMorgan Chase & Co. All rights reserved.