After spending a lifetime clocking in at work, retirement can seem like uncharted territory.
You likely have hopes and wishes for how it will play out. You may even have plans and goals, such as spending summers with your grandchildren or traveling to states or countries you have never visited.
But what you don’t want in retirement is to be surprised by overlooked details that could leave you struggling financially or emotionally.
To help you avoid such situations, let’s review five things worth knowing before — not after — you have retired:
1. Your taxes are not always lower in retirement.
Some retirees expect to see a decrease in their income tax bill, but retirement is not a magical elixir that acts as an antidote to high taxes. Income taxes are based on income, of course, and in retirement income is often connected to expenses.
For example, many retirees plan to travel, especially in the early years of retirement. They may withdraw money from their IRAs to pay for the trips. Those IRA withdrawals count as taxable income, which would actually cause the amount you owe to Uncle Sam to go up.
Also worth knowing is that for most people, 85% of Social Security is taxable. All of this just means you need to have a plan in place to keep taxes as low as possible. One tactic: Begin gradually moving your retirement savings into a Roth IRA when you are several years out from retirement. The money is taxed at the time of the transfer, but it then grows tax-free and you pay no taxes when you make withdrawals after you retire.
However, do not make these moves without a tax-knowledgeable adviser and/or approval from a tax professional.
2. The stock market is not and should not be your only investment option.
You probably spent the past few decades aggressively growing your retirement savings, and one of the best ways to do that was the stock market. After all, stocks offer potentially higher returns than most other investments. But stocks come with risk, and as you near retirement, you can no longer afford an excessive amount of risk. A market drop could devastate your portfolio, and you don’t have the luxury of years or decades to recover.
Unfortunately, the stock market is the only investment option many advisers offer. But before succumbing to the allure of the hottest new technology stock, examine other possibilities. Good alternatives for those nearing or already in retirement include indexed annuities and indexed universal life insurance.
- An indexed annuity allows you to benefit from some of the market gains during a good economy while avoiding losses in a down market.
- An indexed universal life insurance policy not only pays a death benefit, but you can also take a loan from it. If you don’t repay the loan, the amount is subtracted from the payout to your beneficiaries when you die.
Not every annuity or life insurance is right for everyone (and like all other investments, they come with some cons as well as pros), so find a financial professional who keeps your needs in the foreground and isn’t making recommendations based solely on the products they sell.
3. It’s important to understand how your full retirement age for Social Security works.
For most people, full Social Security benefits kick in between ages 66 and 67. You can begin taking benefits as early as age 62, but the amount you get each month will be reduced for life. Plus, if you start taking Social Security before your full retirement age and you’re still working, there are limits to how much you can make before being penalized. If you wait until your full retirement age to begin receiving your benefits, though, there are no limits to how much you can earn. Another consideration is that if you postpone filing for Social Security until you are 70, your monthly benefit will be about 30% larger.
Explore what’s best for your situation before you decide when to file for your benefit. You don’t want to realize in a year or two that you regret your decision.
4. Your social circle could shrivel unless you nourish it.
For most of us, work provides interaction with others, both on the job and sometimes in after-hours gatherings with co-workers. Even with remote work, video-conferencing tools help keep these interactions active. In retirement, though, that social network can shrink as those daily work connections dry up.
Social networks are critical to providing the emotional support and companionship we all need. Research shows that the loss of a robust social network in retirement can affect your physical and mental health. To combat that, the National Institute on Aging offers tips on how to stay connected. Some examples:
- Restart an old hobby
- Take a class
- Use communication technology, such as video chat
- Stay physically active by joining an exercise group
- Introduce yourself to neighbors
- Become active in a faith-based organization
- Join a cause
5. Not every adviser is a fiduciary.
Most retirees can benefit from the assistance of a financial professional, but advisers come in all types, with different licenses and certifications. A broker-dealer, for example, is licensed to sell individual securities. An investment adviser can’t sell securities but can give you advice on which ones to invest in. A Certified Financial Planner™ professional offers a wide range of advice that can include creating a financial plan, reducing debt, choosing investments, setting up an estate plan and saving for short- and long-term goals. Unlike some other financial professionals, CFP® certificants have a fiduciary responsibility to their clients, which means that by law they must always put your interests above their own.
These five examples are just some of the revelations you might experience when you bid farewell to a lifetime of work and step into retirement. There are other factors you will want to know about as well. That’s why it is best to connect with a financial professional who can help you prepare both mentally and financially for the transition, and make sure any surprises are the kind that are welcome.
Ronnie Blair contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements. Insurance products are offered through the insurance business NuVenture Financial Group, LLC. NuVenture Financial Group, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by NuVenture Financial Group, LLC are not subject to investment Adviser requirements. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 2360590 - 4/24
