If you’re a “senior” member of the baby boom generation — generally defined as those born between 1946 and 1964 — you’ve seen a lot in your life: the Cold War, the first moon landing, the birth of the Internet and much more. But in just a few years, you may face something you probably never thought you’d see: your retirement. To make a smooth transition to this stage of your life, you’ll need to become familiar with a few key financial topics.
Consider the following:
• Retirement plan income — For the past few decades, you may have been building financial resources for retirement through an employer-sponsored plan — such as a 401(k) or a traditional pension — and possibly an IRA. Now, however, it’s time to determine just how much retirement income these vehicles will produce. A traditional pension will provide you regular payments based on your years of service and salary, but you have much more flexibility and latitude when it comes to taking withdrawals from a 401(k) or IRA. How much you withdraw directly affects how long your money will last, so you may want to consult with a professional financial advisor to determine the appropriate withdrawal rates for these accounts, based on your projected retirement lifestyle, life expectancy, risk tolerance and other factors.
• Health insurance — Well before you retire, consult with your employer’s benefits office to learn if you can receive some type of health insurance as a retiree. Many large employers extend health care coverage to retired workers, but as health care costs have risen, some companies have cut back or eliminated this benefit. Generally speaking, you won’t be eligible for Medicare until you are 65. If you retire before that age and your former employer doesn’t cover you, you’ll need to find some health insurance to fill the gap.
• Social Security — You can begin collecting Social Security benefits at age 62, but you’ll get larger monthly checks if you wait until you reach “normal” retirement age, which, if you are in the first wave of baby boomers, will be about age 66. When should you start taking payments? It depends on a variety of factors, including your health, family history of longevity and other sources of income.
• Further employment — If you decide to do some type of work after retirement, whether for financial or personal reasons, you’ll need to factor this income into your overall retirement income strategies. For instance, if you’re earning a reasonable amount from a post-retirement job, you may want to delay taking money from your 401(k) or traditional IRA (though you’ll have to start taking distributions when you reach age 70-1/2). Also, according to the Social Security Administration, if you start collecting Social Security when you’re younger than your full retirement age, you will lose $1 of benefits for every $2 you earn above a certain annual amount ($13,560 in 2008). Once you reach full retirement age, you can keep all your benefits, no matter how much you earn.
So, there you have them — just a few of the financial issues you’ll need to explore as you lead the baby boom cohort into retirement. By taking your time and exploring all your options, you can make the transition pleasant — and rewarding.
Frank Bevenour is the Edward Jones representative in Rincon.