3 Simple Rules Before Retiring
Nearing retirement is an exciting milestone, and it also requires careful financial planning to ensure a comfortable and secure future. Beyond assessing your Social Security benefits and savings, it’s important to consider life insurance options that can provide additional financial support. Here are three essential steps to take at least five years before retiring:
1. Calculate Estimated Benefits
Begin by determining your projected Social Security benefits. Creating a mySocialSecurity account online allows you to access your earnings record and receive an estimate of your benefits at full retirement age (FRA). This tool helps ensure your information is accurate and up to date, allowing you to correct any discrepancies while still employed. Accurate records will prevent potential issues when you begin claiming benefits.
In addition to Social Security, consider how life insurance can supplement your retirement planning. For instance, final expense insurance is designed to help cover end-of-life costs, such as funeral and burial expenses, medical bills, and legal fees. This type of policy ensures that your loved ones are not burdened with these costs.
2. Choose When to Claim Your Benefits
Deciding when to claim Social Security benefits significantly impacts your retirement income. While you can start receiving benefits as early as age 62, claiming before your FRA (66 or 67, depending on your birth year) can reduce your monthly benefit by up to 30%. Conversely, delaying benefits beyond your full retirement age (FRA) up to age 70 can increase your monthly payments.
Ensure you have sufficient savings or alternative income sources to support yourself if you choose to delay claiming Social Security. This strategy can lead to higher lifetime benefits and greater financial security during retirement.
3. Coordinate with Your Spouse
If you’re married, it’s crucial to plan your retirement in tandem with your spouse. Decide together when each of you will claim Social Security benefits to maximize your combined income. Often, it’s beneficial for the higher-earning spouse to delay claiming benefits until age 70, resulting in a larger benefit that can provide increased financial support, especially if one spouse outlives the other. Additionally, explore life insurance options that cater to couples. Some policies offer coverage for both spouses, providing financial protection in the event of either’s passing.
Maximizing Retirement with Roth Contributions
In addition to Social Security and life insurance considerations, contributing to a Roth IRA or a Roth 401(k) through your employer can significantly enhance your retirement savings. Roth accounts are funded with after-tax dollars, allowing your investments to grow tax-free. Upon reaching retirement age, qualified withdrawals from these accounts are tax-free, providing a substantial benefit during your retirement years.
Many employers offer Roth 401(k) options, enabling you to contribute a portion of your salary on an after-tax basis. It’s important to note that while your contributions are made with after-tax dollars, employer-matching contributions are typically made on a pre-tax basis and will be taxed upon withdrawal.
By maximizing contributions to these Roth accounts, you can create a tax-free income stream in retirement, reducing your taxable income and potentially minimizing the impact of required minimum distributions (RMDs) from other retirement accounts. For more information on Roth IRA options and benefits, consider exploring resources from reputable financial institutions, such as Schwab’s guide to Roth IRAs.
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This article was updated on 1/30/25.
