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Retiring From Work? 4 Financial Considerations Before You Leave

Retirement Planning
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Man retiring from work and sitting at his desk

Retiring from work is an exciting milestone, but it comes with a lot of moving parts. There are a number of financial details that will likely need your attention before, or soon after, you leave your job. Whether you're preparing for retirement down the road, or the end of your career is right around the corner, here are four important financial details you'll likely want to consider.

1. What Will You Do With Your 401(k)?

To start, it's important to remember that if you're younger than 59 1/2, your 401(k) distributions will be subject to a 10% early withdrawal tax. Make sure to factor that additional cost into your plans. Additionally, your 401(k) distributions may be subject to income tax, depending on what kind of account you have, which would affect the net funds available to you in retirement.

Do you understand your 401(k) payout options? Will you be able to make regular withdrawals from your 401(k) or does the account require you to only take lump sum distributions? If regular withdrawals are not an option, you might be able to rollover your 401(k) into an individual retirement account (IRA) that will allow periodic payouts, if you find that more suitable to your financial road map.

Finally, you may choose to plan for your required minimum distributions (RMDs) down the road. Once you reach age 70 1/2, the IRS requires you to take a minimum amount from your 401(k) (or other tax-deferred retirement accounts) each year. While your RMDs will not come into effect until you are over 70, it is important to understand what you will be required to withdraw, since it may affect your distribution choices before then.

2. What Are Your Pension Options?

If you qualify for a pension, then it may help to understand exactly what you are entitled to through it. You may qualify for a lump sum distribution upon your retirement, which you might consider rolling over into an IRA to have that money distributed and taxed differently, or you may choose to take an annuity payment for life. There are several different annuity payout options available. For more information, you may want to speak with a financial representative to determine what might work best for you.

3. What Can You Expect From Your Social Security Benefits?

Understanding what you can expect from your Social Security benefits may help you develop a more complete picture of what your finances will look like in retirement.

Signing up for a my Social Security account can provide more detailed insights into your specific benefits. To start, your account will tell you how much of a monthly benefit you can expect and when. Taking your benefits prior to reaching your full retirement age reduces your monthly benefit, and waiting until after your full retirement age increases it.

Your my Social Security can also help you understand how your benefit may affect your spouse so that you can coordinate your applications together. Finally, my Social Security also helps walk you through the application requirements. You cannot apply for benefits more than four months prior to when you wish to begin receiving them, and there are several documents you may need for your application. Planning ahead for when you want to apply for your benefits can help you prepare when the time comes.

4. What Will You Do About Health Care?

Health care could be a major expense in retirement, so it can help to consider your options before retiring from work. If you are retiring prior to age 65, you may want to talk to your human resources department about what your options are for continuing on your company's health insurance plan. Some employers offer continued health insurance coverage to retired workers.

If that is not an option, or if you are only eligible to continue on your employer's health plan through the Consolidated Omnibus Budget Reconciliation Act (COBRA), comparing options through the Affordable Care Act (ACA) health care exchange might help you find a plan that can bridge the gap between your retirement and qualifying for Medicare.

Exploring your Medicare options is also an important part of planning for retirement, even if you're still a few years from 65. You'll want to understand what Medicare does and does not cover, and how much you can expect to pay in premiums each month for your Medicare plan.

Finally, you'll likely want to get the necessary documents ready for your Medicare application if you intend to apply so you are ready to go during your initial enrollment period (the three months before through the three months after your 65th birthday). Missing this enrollment period can incur a late enrollment penalty.

Preparing for retirement can help you make a smooth transition into your postcareer life. As you prepare to leave your job, consider checking up on the considerations above.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.