Stepping Into Retirement

Top Items to Help You Prepare

By ANGIE M. STEPHENSON, CFP®, CPA/PFS

Partner, Senior Wealth Advisor, Domani Wealth

Are you ready to retire in the next several months or upcoming years?

If you are looking ahead with joy and expectation to realizing your retirement in the near future – congratulations! You may also be asking yourself: What do I need to do to be ready for this next step? If you, your friend, or a loved-one is reaching the finish line on the career stage of life, here are some items for you to review and share!

HOW TO PREPARE FOR RETIREMENT:

Ownership Transition: If you are a physician who owns a practice, it’s important to have a plan in place to transition your practice and work with professionals who may assist you in valuing the practice. It’s possible you will sell the practice to another group, who will take care of your patients and transition the ownership. This review and planning should begin a few years before retirement.

Health Insurance: You will need to determine how you will receive health insurance after retirement. You will likely have the option of Medigap coverage or Cobra available to you. Will you have Medicare available, and will supplemental health insurance be needed?

Medicare Premiums: You will need to understand how Medicare premiums work. As you retire, you can file a life event change of status for your Medicare premiums. By doing this, your monthly payment will not be based on your previous, paycheck-based income from two years prior, but rather will be adjusted to your current income, which could save you hundreds of dollars a month.

Disability Policies: It’s possible you may have a supplemental disability policy as a physician available to cover your income in the event you became disabled. If you are retiring, it is important to cancel the policy upon retirement, since you should no longer need this coverage.

Part-Time Work: Many physicians retire and work on a part-time basis. The arrangement can help provide coverage for other physicians during their paid time off, or to assist with a high case load at a hospital or medical practice. If this is what you are considering, think through the amount of income you will earn as a part-time employee. This will be an important factor in whether you want to begin taking social security or delay the payments until after you are no longer working. There are earnings limitations in place that may require you to repay part of your social security if you are not at “full retirement age.” This is something to be carefully reviewed and planned for with your financial planner.

Social Security: Are you eligible to begin taking Social Security, and if so, when is the optimal time? Collecting these payments at the right time can affect several financial factors in your life.

Pension Plans: Learn the details of any pension payments or defined benefit plan payments you are eligible to receive. The details surrounding your payout can be complex, and there are often several options to structure the payout. If you are married, should you select the joint payout option to also include an annuity for your surviving spouse if something were to happen to you? Is there a guaranteed term to the plan? Reviewing the risks and benefits of each payout plan will be beneficial.

Employer Retirement Plans: Take the right steps for any employer-based 401(k) or 403(b) plans: What elections do you need to make? Do you plan to rollover the amount from those plans into an individual IRA, and how might that help you with the investment options available to you? Do you have any employer stock in a stock purchase or stock option plan? There could be tax-efficient ways to distribute that stock to you.

Retirement Income: Make sure you are comfortable and understand where your cash flow will come from each month when a paycheck will no longer be deposited automatically. Knowing the tax consequences of where your cash flow comes from is incredibly helpful. You will be affected differently if you pull funds out of your IRA vs. a Roth IRA or your personal investments. A tax planning strategy coordinated between your financial planner and your accountant will be key.

Income Taxes: What is your plan to pay your income taxes moving forward, since they will no longer be withheld from a paycheck? You may need to estimate taxes, determine what needs to be withheld from pension payments, IRA withdrawals, and Social Security payments. In the early years of your retirement, there may be a possibility for a Roth Conversion between your retirement date and age 72, when your Required Minimum Distributions will begin.

Charitable Giving: You should work with your financial planner and your accountant to determine how your charitable giving can impact your financial picture in retirement. Should you consider “bunching” contributions for tax deductions? Is a donor-advised fund something to consider?

Home Equity Line of Credit: Consider a home equity line of credit (HELOC) loan before you retire, if you own a home. Banks often lend more readily to those with regular paycheck-based income. Having a HELOC may enable you to be more flexible with access to cash during an emergency, or if markets may be volatile. This access can also help you balance income to minimize tax consequences or help you manage Medicare premium costs.

Professional Management: Decide if you feel comfortable managing your retirement plans and investment funds yourself or if you would like professional help. Working with a financial planner to manage your portfolio can help you ensure your retirement needs are met and improve your overall risk to match your goals. You will be able to answer questions such as – will your tax rate change? When should you begin pension or Social Security income? What risk level and investment options are the best for your specific plans and goals? How will charitable giving and tax planning affect your retirement?

As you, your friends, or a loved-one approaches retirement, you can use this list to review and plan for entering retirement feeling confident and comfortable. Each item needs evaluation and a thoughtful approach.