Tips for people who will retire in 2016
Retirement is a transition into a new phase of life that requires changes to your finances and lifestyle. Here are some of the final preparations you should take care of in the months leading up to retirement.
Take advantage of workplace retirement benefits. Your final few months on the job are your last chance to take advantage of workplace retirement benefits. This is a great time to tuck some extra money into a 401(k). Workers ages 50 and older can put as much as $24,000 in a 401(k) account in 2016. Also check to make sure that you are vested in your retirement account. If you aren't vested, you might get to keep only a portion of your employer's contributions to the retirement account, or perhaps even none at all. If you are close to becoming vested, sticking around a few extra months can be worth thousands of dollars in retirement money.
Decide whether to roll over your 401(k). Consolidating your retirement accounts can make them easier to keep track of in retirement. Moving your money to an IRA also gives you a wider variety of investment options and sometimes lower fees. "With an IRA, you have essentially the whole world of investing to choose form, and it's going to provide a lot of flexibility for you," says Joe Pitzl, a certified financial planner for Pitzl Financial inArden Hills, Minnesota. However, if you leave your job between ages 55 and 59 1/2 (ages 50 to 59 1/2 for public safety employees), you might want to consider keeping your money in the 401(k) for a few more years. Penalty-free withdrawals from 401(k) accounts are allowed beginning at age 55 (age 50 for public safety employees) when the 401(k) is associated with a job you leave at that age or later. If you roll the money over to an IRA, you will have to wait until age 59 1/2 to avoid the 10 percent early withdrawal penalty on distributions.
Set up new health insurance. If you're covered by a group health insurance plan through your job, it's important to secure new health insurance before leaving the company. If you're age 65 or older, you can sign up for Medicare. It's important to enroll in Medicare during the seven-month window around your 65th birthday to avoid permanently higher Medicare Part B premiums. "You should sign up as soon as you can, which is three months before you turn 65," says Ronald Kahan, a medical doctor and author of "Medicare Demystified: A Physician Helps Save You Time, Money, and Frustration." If you continue to work past age 65, sign up within eight months of leaving the job or group health coverage to avoid the penalty. If you plan to retire before age 65, look into purchasing health insurance through your state's health insurance exchange.
Select an age to sign up for Social Security. One of the most important retirement decisions you will make is when to start Social Security benefits. Payments are permanently reduced if you claim payments before your full retirement age, which is 66 for people retiring in 2016. Retirement payouts increase if you delay claiming after your full retirement age up until age 70. "If you have two parents who have lived past 90, odds are you may want to consider delaying," says Samantha Fraelich-Rohe, a certified financial planner for IntegriGen Wealth Management in Rockville, Maryland. "If you have health issues, you may want to draw sooner." You can create a My Social Security account at ssa.gov/myaccount to get a personalized estimate of the amount you will receive if you sign up at various ages.
Remember required minimum distributions. After age 70 1/2, you will be required to take annual withdrawals from your traditional retirement accounts. The penalty for missing a distribution is 50 percent of the amount that should have been withdrawn. Your first required minimum distribution is due by April 1 of the year after you reach 70 1/2. All subsequent distributions are due by Dec. 31 each year. However, you don't have to wait until your 70s to start taking distributions from your traditional 401(k)s and IRAs, and paying the resulting income tax bill. "You can accelerate withdrawals from the IRAs between now and age 70, which reduces the required minimum distributions later on in life," Pitzl says.And if you are still working for a company you don't own, you may be able to continue to delay distributions from the 401(k) associated with your current job. Income tax won't be due on most distributions from Roth accounts in retirement, which can help you to lower your annual tax bill.
Plan out your first few weeks of retirement. A little relaxation is likely to be your first order of business. But it's also a good idea to start pondering a few longer term goals. You might like to volunteer or upgrade your personal garden. Maybe you want to take some classes or learn to paint. Spend a little time dreaming about the activities that will fill your days. "When you are retired you all of a sudden have a lot more free time than you did before," Fraelich-Rohe says. "The biggest adjustment is having a purpose."
Copyright 2015 U.S. News & World ReportRelated: Best things to do in your retirement.
More on AOL.com
Why retirees are moving again
The 4 worst cities to retire
Millennials... Let's remember retirement