Advice for Workers Retiring in 2014

First Baby Boomer Files For Social Security Retirement Benefits
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By Emily Brandon

The oldest baby boomers will turn 68 in 2014. Some boomers are already retired, and many others will join them in the coming year. Here are some tips for people planning to retire in 2014:

Revisit your asset allocation. It's important to dial down the risk in your investment portfolio as you approach retirement, but you also need to ensure your portfolio will keep up with inflation over what could be several decades of retirement. "As you approach retirement, it makes sense to scale back some of the risk in the portfolio," says Susan Strasbaugh, a certified financial planner and principal of Strasbaugh Financial Advisory in Colorado Springs, Colo. "When you are talking about a 30-year retirement period, you don't need everything really conservatively invested because you still need growth to stay ahead of inflation." Strasbaugh recommends investing a portion of your assets in cash or short-term bonds, while investing some of your longer-term money more aggressively.

Stress-test your retirement finances. Take a look at the worst-case scenario for your investments, and consider whether you will be able to pay for all of your retirement necessities if that happens. "If you can financially afford to absorb a loss like we have seen in the past and still have enough income, that is going to be the most comforting thing," %VIRTUAL-article-sponsoredlinks%says Greg Phelps, a certified financial planner and president of Redrock Wealth Management in Las Vegas. "If a loss of 25 percent would cause you perilous harm, then you need to go back to the drawing board."

Simplify your investments. Unless you plan to make managing a complicated investment portfolio one of your retirement hobbies, it will save time if you simplify what you are invested in and how many accounts you have. "It's very useful to consolidate your accounts," says Jerrold Grecu, a certified financial planner and president of Grecu Capital Management in Roseville, Calif. "If you have accounts at a variety of different institutions, it's much more difficult to manage statements."

Carefully consider when to claim Social Security. You don't necessarily need to sign up for Social Security in the same year you retire. Social Security payments increase for each year you delay claiming up until age 70. "Generally, the longer you can put claiming Social Security off, the better you are," Phelps says. "Even if you are pulling money out of a taxable account or an IRA account more heavily in the earlier years, if you can put off Social Security until age 70, your finances end up much stronger at age 90."

Sign up for Medicare on time. You can first sign up for Medicare during the seven-month window surrounding your 65th birthday. If you fail to sign up during that period (or within eight months of leaving group health coverage connected to your or your spouse's job), your monthly Medicare Part B premiums will increase by 10 percent for each 12-month period you were eligible for Medicare but didn't sign up. There can also be penalties if you don't enroll in Medicare Part D and Medigap plans when you are first eligible to do so. "If you are approaching Medicare age, it's really important to find out what your [Medicare] benefit will be and to look at Medigap policies because Medicare doesn't cover everything," Strasbaugh says. "If you don't sign up upfront, there's quite large penalties to get a policy later."

Avoid health insurance gaps. If you plan to retire before age 65, consider how you will find and pay for health insurance before you qualify for Medicare. "It's not necessary that you wait until Medicare age to retire, but it's extremely important to look at the cost if you do retire before then," Strasbaugh says. "A lot of people who were insured through an employer are shocked at the cost."

Remember to take RMDs from retirement accounts. Distributions from traditional 401(k)s and IRAs are required after age 70½, and income tax is due on each withdrawal. The distribution amount is generally calculated by dividing the account balance by an IRS estimate of your life expectancy. If you miss a distribution, the penalty is 50 percent of the amount that should have been withdrawn.

Consider a gradual transition into retirement. Consider cutting back your hours or shifting to part-time work before you retire completely. This will give you a boost in leisure time while also bringing in some income. "It's really difficult to go from working 60 hours a week to nothing. Consider semi-retirement or a 30-hour-a-week schedule," Strasbaugh says. "It's important for people to think about what else they are going to do with their time." Strasbaugh often asks her clients to write down what their ideal week in retirement will look like.

Decide how you will spend your time. Whether you want to travel, volunteer or relax, consider how you will fill your days in retirement. "Many people spend more than they expected because they underestimate costs like travel and hobbies, and many of them pick up new hobbies," Grecu says. "Carefully consider how your expenses might change in retirement."

More from U.S. News:

Retirement Tax Heaven (and Hell)
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Advice for Workers Retiring in 2014
Where you live can have a huge impact on your tax bill in ways that may surprise you. Some states are more tax-friendly for retirees than others -- particularly if you are living on a fixed income -- can have a big impact on how much you have left over to spend.

Click through our gallery to see which states qualify as "heaven" and which are "hell" for income tax, pension, social security benefits, sales tax and property tax.

Read Kiplinger's Article

Next: States With No Income Tax
Don't assume that a state with no income tax qualifies as a tax haven. High sales and property taxes can more than offset the absence of an income tax.

7 States With No Income Tax
South Dakota
(N.H. and Tenn. tax only dividend & interest income that exceeds certain limits.)
Next: Pensions - Tax Heavens
Only three states exempt virtually all retirement income (including public and private pension benefits, 401(k) and other retirement-plan distributions, and IRA withdrawals) from state income taxes.

3 Best States for Pensions

Next: Pensions - Tax Hells
Five states are particularly tough on retirees. Not only do they fully tax most pensions and other retirement income, but most of them also have fairly high top tax brackets.

5 Toughest States for Pensions
Rhode Island

Next: Social Security Benefits - Tax Heavens
36 states and the District of Columbia don't tax Social Security.

36 States That Are Heaven
Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin and Wyoming
Next: Social Security Benefits - Tax Hells
The remaining 14 states tax Social Security benefits to some extent.

14 Tax Hells
Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. (Iowa will gradually phase out its Social Security tax by 2014, starting in 2008)

Next: Sales Taxes - Tax Heavens
These five states have no state sales taxes.

Top 5 States
New Hampshire

Next: Sales Taxes - Tax Hells
These five states each have a state sales tax of 7%, the highest in the nation.

5 Worst States
New Jersey
Rhode Island

Next: Property Taxes - Tax Heavens
Based on data from a 2006 Census Bureau survey and Tax Foundation calculations these are the five states with the lowest median real estate taxes.

5 Best States for Propert Taxes
West Virginia

Next: Property Taxes - Tax Hells
At the other end of the spectrum, these five states have the highest median real estate taxes. (from highest to lowest according to 2006 Census Bureau survey and Tax Foundation)

5 Worst States
New Jersey
New Hampshire
New York
Also: Retire on Time? Sure You Can

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