Smart Moves for Life's Big Events: Easing Into Retirement
Before you ditch the daily grind for good, do a complete benefits checkup.
Sure, go ahead and pick a date for your retirement party. But get a handle on how you intend to manage your benefits and cash flow once you stop working.
Sign up for Medicare. If you're 65, make sure you sign up for Medicare Part A so that you're covered for hospital services. It's free. If you don't have health insurance from a former employer, you probably need to sign up for Medicare Part B, which covers outpatient services and visits to the doctor. Most beneficiaries who enrolled in Part B Medicare before 2010 will continue to pay $96.40 a month. But if you enroll in Medicare this year, you will pay at least $110.50 per month for Part B, and high-income people will have to pay even more.
You can enroll in Medicare during a seven-month window that begins three months before your birthday month and lasts three months beyond your birthday month. If you miss that window, you will have to wait until the general enrollment period -- which runs from January through March -- and you'll pay a penalty in the form of higher monthly premiums for Part B coverage for the rest of your life. (There's an exception if you or your spouse is still working and has coverage from an employer.) To enroll, go to www.socialsecurity.gov.
Decide when to take Social Security. At age 62, you can start collecting monthly Social Security checks. But if you do, your benefits could be reduced by 25% or more for the rest of your life. If you wait until your "normal" retirement age (66 if you were born between 1943 and 1954; older if you were born after that), you can avoid a reduction in benefits. However, if you don't need the money right away, you can wait until 70 and reap the benefits of the delayed-retirement credit. It's worth 8% a year.
Stretch your retirement income. To make sure you don't outlive your money, experts recommend that you draw down about 4% of your nest egg during your first year in retirement and adjust that dollar amount in future years to keep pace with inflation. If 4% of your nest egg doesn't generate enough income, consider stretching your retirement dollars by buying an income annuity (see Lock In Your Retirement Income). Add up your fixed monthly expenses and compare them with your guaranteed sources of income. If there's a gap, consider filling it with an annuity.
Buy long-term-care insurance. If you're still working, see whether your employer offers it. You may be able to get a good deal -- particularly now that some firms are offering policies with reduced premiums. Just make sure you understand the limits of your policy (see Long-Term Care You Can Afford). For outside help, speak to a local agent who works with a range of insurers. The American Association for Long-Term Care Insurance can give you a list of agents in your area.