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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. You should also talk with someone about the relative costs and benefits of Medicare Advantage or original Medicare with Medicare supplemental insurance (Medigap). And 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.

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