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Are you Ready for Retirement

Retirement – Are You Ready?

Posted on 12/31/2013

Vizualize your life in retirement. Think about the activities that will fill your hours. Do you plan to volunteer, enjoy hobbies, take care of grandchildren, or travel? Consider joining a social club, take a class at a local college or even get a part-time job.

Create a retirement budget. Do your best to estimate what your expenses will be, then consider adding a cushion for the unexpected. Be sure to make allowances for health care costs and inflation. Unless you enter retirement newly mortgage-free, most of your other expenses are likely to remain the same in retirement and may even increase if you plan to travel or take up new hobbies.

Particular ages entitle you to certain financial benefits.
  • At 55 you can make penalty-free withdrawals from a 401(k) or other employer-sponsored retirement plan if you leave your job.
  • At 59 ½ you can make penalty-free withdrawals from employer-sponsored retirement plans and individual retirement accounts (IRAs). Note, for a Roth IRA, you must also have held the account for at least five years to make penalty-free withdrawals.
  • At 62 you can begin collecting early Social Security benefits (smaller payments over a longer period of time). Annual payments increase for each year you delay claiming until you are 70.
  • At age 65, you qualify for Medicare.
Examine your cash flow. Make sure you will receive enough income to pay all your monthly bills. Most retirees receive income from many sources, including Social Security, pensions, investments, part-time employment, home equity, annuities, insurance, royalties, and rental income.

Size up your nest egg. How much you need to save for retirement depends on what your retirement expenses are and how much money you have coming in from other sources. Your savings needs to fill the gap between your monthly living costs and your guaranteed sources of income (pension, Social Security, etc.)

Review allocation of investments. Make sure you make all necessary adjustments to your investment funds to prepare for retirement. There are a number of ways to allocate your funds during the payout phase; it may help to have a professional assist in making those adjustments.

Develop a withdrawal strategy. Create a plan for drawing down your assets. Most financial advisors agree you can “safely” spend four percent of your nest egg each year. This really depends on what age you plan to retire, your life expectancy, your funds, and your monthly expenses. Withdrawals from tax-deferred retirement accounts are required after age 70 ½. To calculate the appropriate withdrawal amount, divide your IRA and 401 (k) balances by the IRS’s estimate of your life expectancy. In addition to regular income tax, the penalty for failing to take out the correct amount is 50 percent of the amount that should have been withdrawn.

Consider inflation. After determining your budget, use a three percent inflation rate to determine your needs for subsequent years.

Minimize taxes. When you withdraw money from tax deferred 401 (k)s and IRAs, regular income tax is due. If your tax bracket fluctuates from year to year, you can time your account withdrawals to minimize taxes. Withdraw less when you are in a higher tax bracket and take out more or convert to a Roth IRA when you are in a lower tax bracket.

Maximize social security. Social Security benefits begin at age 62, but annual payments increase for each year you delay claiming until age 70. Retirees who sign up at age 62 receive smaller payments over a longer period of time, but those who delay claiming will get higher payments when they are more likely to need them.

Get health coverage. Many people delay retirement until age 65 when they become eligible for Medicare. Sign up right away to avoid a Medicare Part B premium increase of 10 percent for each year of delayed enrollment. Those who retire before age 65 need to purchase health insurance. Consider whether your employer provides COBRA or if you will need to purchase an individual policy.

Prepare for long-term care. Medicare pays for up to 100 days of nursing home care, but a chronic condition or prolonged illness could require care for longer. Purchasing long-term care plan insurance are not appropriate for all retirees, however it is one way to protect yourself from high nursing care costs.

Reduce financial responsibilities and pay off debt. Before you retire, reduce financial drains like credit card debt, a child’s college tuition, or major repairs to your home. Pay off as much debt as possible before you retire.

Keep your emergency fund. While you no longer have the risk of losing your job, the need for an emergency fund doesn’t disappear when you retire. Plan to have at least one year’s worth of funds in addition to Social Security for unexpected expenses.

Consider a leave of absence or phased retirement. Take an extended vacation or leave of absence to see if you’re ready for retirement. Or consider reducing the hours you work over time until you officially retire. The main benefit of a phased retirement is delaying Social Security because the longer you wait, the higher the payment you’re eligible to receive.

If you’re married, get your spouse on board. Just like the first year of marriage, the first year of retirement requires adjustments in responsibilities and boundaries. Perhaps one spouse wants to retire while the other will continue working. Having each other’s support is important.

Get an objective view. Meeting with a financial advisor at Space Coast Credit Union can help you determine your financial readiness to retire.

This article is not intended as tax advice. Please contact your financial advisor for more information.
This article is not intended as tax advice. Contact a tax professional. - See more at:,-can-I-still-co#FAQLink1375
This article is not intended as tax advice. Contact a tax professional. - See more at:,-can-I-still-co#FAQLink1375

About Space Coast Credit Union

Space Coast Credit Union was chartered in 1951 and is headquartered in Melbourne, Florida. The Credit Union serves over 239,000 members with assets of over $3 billion through a network of 57 branches and over 100 ATMs located throughout Florida and through its web site, Space Coast Credit Union is open for membership to anyone who lives or works in the Florida counties it serves.
  • SCCU Routing Number: 263177903

Space Coast Credit Union membership is open to all who work or live in Brevard, Broward, Flagler, Indian River, Martin, Miami-Dade, Monroe, Orange, Osceola, Palm Beach, Seminole, St. Johns, St. Lucie, or Volusia Counties in Florida.

  • Brevard: 321-752-2222
  • Broward: 954-704-5000
  • Miami-Dade: 305-882-5000
  • All Other Areas: 800-447-7228

*APR = Annual Percentage Rate. ^APY = Annual Percentage Yield.

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