Is this going to be the year you clock out of work for the last time and start living your life entirely on your own terms? Congratulations!
Before you completely stop earning an income, however, there's a handful of tasks you'll want to complete to make the financial part of the transition easier. Here are four of the biggest ones you'll want to start addressing now, since sometimes it can take weeks (if not months) to finalize matters.
1. Set up a rollover IRA account
Assuming you have some sort of retirement savings through your workplace, you'll need to have a new account to move that money into once you're no longer an employee. In most cases, the new account will be considered -- and is usually called -- a rollover IRA, meaning you just roll those assets or cash into a new account outside of your employer's retirement plan. You can often leave it with the same brokerage firm or plan sponsor, in fact, although that's not a requirement.
And transfers from a work-provided retirement plan to rollover IRAs aren't a taxable event as long as you transfer them directly to the rollover account.
Don't stop there, though. You probably won't want to invest the same way after you have retired that you're investing while employed. Stability and income will become priorities, displacing your need for growth while you have been building your nest egg.
Presume that you'll own at least a few more fixed-income investments. A financial advisor can help you figure out exactly what your new portfolio should look like, and how and when you should make this transition even before it actually has to happen.
2. Take a detailed look at your Social Security options
Most everyone recognizes they'll be eligible for at least some Social Security retirement benefits. There's little we can do to determine how much we pay into the system, so most of us don't pay too much attention to our personal benefits profile.
Now's the time to do that ... in detail. You might find that by waiting even just a few more weeks to claim retirement benefits, your monthly check is bigger enough to matter. Conversely, it might matter very little at all.
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Perhaps the biggest matter you'll want to better understand is all of your payment options as they relate to your spouse's own retirement benefits. You should choose a payment structure that takes into account spousal benefits, and then understand how survivors benefits work. A visit to your nearest Social Security office might be the best way to explore all of these choices and get all of your questions answered.
3. Make a health insurance plan now
For most of us, our health insurance coverage is part of our employer's compensation package. When you're no longer an employee, though, that benefit often stops. You'll want to make a plan to maintain such protection before you retire.
That's particularly true if you're not yet 65 and therefore not yet eligible for Medicare.
While some employees might be able to continue buying health insurance from their employer's provider, that's not a viable option for most. State-specific health insurance marketplaces are often your best bet, and depending on your income, you might even be eligible for reduced premiums.
4. Create a budget that works with your future income
Lastly, before you try to start living without your regular income, you'll want to figure out if you can actually afford to do so.
First, add up how much you'll be able to regularly withdraw from any of your own retirement savings accounts without depleting them too quickly; your brokerage firm's representatives or a qualified financial advisor familiar with your situation can help you do this. Then, if applicable, find out how much your pension plan will pay you by contacting one of its service representatives.
And the Social Security Administration can provide a specific monthly payment figure that you're due once you claim retirement benefits.
Now, add up all of these numbers, and that's your new monthly income!
Not as much as you've been earning? Don't panic: In general, you need less money in retirement than you do while you're working. You're likely to be driving less, for example, and you will no longer need to buy a work wardrobe. The rule of thumb is that you only need to earn about 80% of the wages in your last year of employment to maintain your current lifestyle in retirement.
On the flip side, since you'll be able to travel more, or spend more time on hobbies, those things will cost money too. If your current or future spending plans still exceed your future income, your budget needs adjusting.
