retirement

What Should You Do When You Turn 59½?

Here are four possibilities to consider when you reach this significant financial milestone.

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.

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.

About the Author

Ash Toumayants, Investment Adviser Rep

President and Founder, Strong Tower Associates

Ash Toumayants is the founder of Strong Tower Associates, a retirement planning firm dedicated to helping clients in all stages of life prepare for retirement. For over a decade, he has helped hardworking people across Central Pennsylvania prepare for retirement. Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor. Strong Tower Associates and RWA are not affiliated.

Most Popular

You'll Save More on Green Home Improvements Under the Inflation Reduction Act
Tax Breaks

You'll Save More on Green Home Improvements Under the Inflation Reduction Act

Tax credits for energy-efficient home improvements will be extended and expanded by the Inflation Reduction Act.
August 12, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
August 7, 2022

Recommended

2 Risks People Face If They Retire in Tough Economic Times
retirement

2 Risks People Face If They Retire in Tough Economic Times

You’ve reached your retirement age, but our economy is on the rocks. What should you do?
August 13, 2022
How to Steer Your Retirement Portfolio Through the Storm
retirement planning

How to Steer Your Retirement Portfolio Through the Storm

Right now, it feels like there’s an economic challenge around every corner. But the good news is you can still protect your nest egg.
August 12, 2022
Annuities Rising in Popularity
annuities

Annuities Rising in Popularity

As interest rates increase, so does the appeal of annuities. How much do you know about these insurance products?
August 9, 2022
What Hidden Obstacles May Snag Your Retirement? 5 Key Points to Consider
retirement

What Hidden Obstacles May Snag Your Retirement? 5 Key Points to Consider

To avoid getting hung up unexpectedly, plan for retirement using the “TRICK” method, which stands for taxes, risk tolerance, investment mix, costs and…
August 6, 2022