As you near retirement, it becomes important to consider your financial options, and the issues that are likely to affect you in retirement. It is a good idea to understand some of the milestones that will affect you, as well as some of the financial moves that might benefit you as you head into retirement. Here are 4 things to think about with regard to your retirement finances:
- Retirement fund withdrawals: When you are 59 1/2, you can begin withdrawing from your retirement accounts penalty-free. Be careful, though: For some accounts you need to have your account for at least five years before you can begin withdrawing earnings. You should also be aware that some companies won’t allow you to start taking distributions until you retire. Another thing to be aware of is the age 70 1/2. When you hit this retirement milestone, you have to start making minimum distributions from most retirement accounts. The Roth IRA is an exception to the required minimum distribution.
- Social Security benefits: Another financial consideration is when to start receiving your Social Security benefits. You’re eligible at age 62, but you will see a reduction in benefits. You can increase your benefits by waiting until you are 66, and your benefits increase by 8% for each year you wait between the ages of 66 and 70.
- Debt (including mortgage): Think about what you owe in terms of debt. Your best bet is to pay down your debt before retirement, or as soon as you can after you retire. This includes your mortgage. You want to reduce your financial obligations leading up to your retirement, and paying down debt is a good way to put yourself in a better position.
- Financial safety net: The financial crisis and recent recession showed many that it is important to have a financial safety net of some sort as retirement approaches. Do you have an emergency fund? Do you have a Plan B if you have to work a little longer than expected? Are you sufficiently diversified so that your losses are limited if on asset class crashes?
It can help to consider the above financial areas, and make a plan for your retirement finances. Consider your options, and start now to get ready to retire as you would like.