If you’re nearing the big 6-0, don’t fret too much about getting old. After all, 60 is the new 40, right? There are many 50- and 60-year-olds who are in prime health and feel like they are just hitting their stride. Not to mention the often-forgotten benefits of getting older, like discounts at McDonald’s, Denny’s, Chick-fil-A and KFC.
Minor stuff aside, there are also some real financial benefits to reaching age 59½. Here are four things to do when you turn 59½ that will help you explore new opportunities and build a strong foundation for your future retirement.
Re-evaluate Your 401(k)
Fifty-nine and a half is the magic age when you can start taking money out of your retirement accounts without penalty. That doesn’t mean it’s time to drain your accounts, but it does give you more options.
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Use It as a Safety Net
By now you’ve probably discovered the benefits of having an emergency or rainy-day fund. Having some cash set aside gives you incredible peace of mind, because you know that if you lose a job or your car breaks down, you won’t end up in debt.
Up until now, your only real options to bulk up such a fund were a savings or money market account that couldn’t even keep up with inflation. Now that you’re 59½ and the withdrawal penalty is gone, you can actually use your 401(k) as an easily accessible, tax-deferred safety net. In a retirement account, you can even invest some of the money for growth, though you do want to keep some in cash for emergencies. Remember that withdrawals from retirement accounts will be taxable, since you’ve never paid taxes on those funds.
Make Catch-Up Contributions
The IRS allows people 50 and older to contribute extra to their retirement accounts, both IRAs and employer-sponsored accounts. Doing so will not only build up your retirement savings, but it can lower your taxable income. A lower income can keep you in a lower tax bracket and make you eligible for more tax deductions, which saves you money on taxes. (For more, see How Much Can You Contribute to a Traditional IRA for 2019? and How Much Can You Contribute to a 401(k) for 2019?)
Consider an In-Service Rollover
The major complaint regarding 401(k) plans is the lack of investment options available within a given plan. The average 401(k) plan has only eight to 12 options, according to the Financial Industry Regulatory Authority. That compares with the seemingly infinite options available on the open market. Once you reach age 59½ you may be eligible for an in-service rollover, which allows you to move 401(k) funds into an IRA without penalty even while you still work for the same employer.
This is a unique opportunity to access better investments that is not available to most workers. Not only do you have more investment options within an IRA, but it also gives you greater flexibility and more control.
Track Your Spending
One of the hard things about planning for retirement when you’re younger is that you have almost no concept of what your income needs and spending habits will be so far into the future. While you may not be planning on retiring for quite some time, it’s still close enough that you have a better grasp on what your needs will be.
Now is the perfect time to start tracking your spending in order to create a retirement budget. Having a detailed budget for retirement will help you determine when to retire as you will be able to see the trade-offs between working longer and the lifestyle you’ll be able to afford in retirement.
Don’t Forget Health Care
Now is an important time to be thinking about your health care. It’s easy to assume that it’s safe to retire now that you have access to all of your retirement savings or even if you wait until you’re 62 and can start receiving Social Security benefits. The mistake that people make when retiring early is forgetting about health insurance.
Even though you can access your money penalty-free now, you don’t have access to Medicare until you are 65. If you’re playing with the idea of retiring before 65, start researching your health care options today. Whether you make use of COBRA or buy an individual policy on the exchange, you need to make sure you have coverage until you reach Medicare eligibility.
Consult a Financial Professional
As you near retirement age, there is a lot for you to think about. In the coming years, you are going to be making a lot of major decisions that will affect you for the rest of your life. In times like these, it’s best to consult with an experienced financial professional.
Financial professionals help people evaluate their goals, analyze their options and come to decisions that they will be happy to live with for a lifetime.
This information is designed to provide general information on the subjects covered; it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Strong Tower Associates and its affiliates do not give legal or tax advice. You are encouraged to consult your tax adviser or attorney.
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