The Essential Financial Checklist for 2017 Retirees – Part I

There is no doubt that 2017 will be a year of change for all of us. To start, we are kicking off the New Year by inaugurating Donald Trump into office as the 45th president of the United States. But 2017 may be an even bigger year of change for those entering retirement.

The ability to retire is one of the main goals that we all share — after all, it’s a milestone that we have spent most of our lives working to reach. Yet when the time comes, taking that step can be very overwhelming, as retirement is a major life transition that requires some planning. Here is a checklist that can help retirees make this new phase of life less intimidating.

Develop a budget

Whether you’re about to make the transition or still have a few years to go, the most common concern that we all have regarding retirement is, “Will I have enough?” To help tackle this question, the first three areas new retirees should examine are their income needs, income sources and available assets. Once they determine this information, retirees will be better prepared to identify any potential shortfalls and areas where adjustments can be made to help them meet their goals.

Evaluate your expenses

Regardless of their financial situation or retirement time horizon, I encourage everyone to track their spending. Your spending activity can have a huge impact on the success of your financial plan, an impact we often don’t realize until we see the big picture. A personal budget can be a great tool for keeping spending in check. It’s about focusing on what you can control — and while we can’t control what happens in the financial markets, we can control what we spend.

When you enter retirement, you may see a decrease in your income and an increase in your medical expenses, which may allow you to deduct more expenses on your tax return! For 2017, if your medical expenses aren’t paid by an insurance company or other source, you will be able to deduct medical and dental expenses that exceed 10 percent of your adjusted gross income (AGI), which is another reason why it is important to track your expenses.1

Review your portfolio

Remember that daily expenditures are not the only expenses that are within your control; it’s also imperative to look at the expenses within your investment portfolio. What management fees and fund expenses are you paying? Are those fees reasonable? Do your funds come with pricey, upfront sales loads or redemption fees? Is your advisor receiving commissions for the funds within your portfolio? It’s crucial to have a comprehensive understanding of the fees you are paying; studies have shown that higher fees can be detrimental to the performance of a portfolio over the long term. If you aren’t sure, don’t be afraid to ask.

Financial checklist for 2017 retirees

Determine the optimal time to begin receiving your Social Security benefits

The decision to file for Social Security benefits is personal for many people. There are several factors to consider, including your cash flow, life expectancy and general feelings about Social Security, all of which can influence timing. For example, some people prefer to start Social Security as soon as possible, with the feeling that they’ve paid into the system for so long and are ready to start receiving benefits.

However, if you elect to receive your benefits before your full retirement age (FRA) — which is age 66 for those born between 1943-1954, and age 67 for anyone born after 1960 — you will be locked into a reduced benefit, which is generally not advantageous, especially if you have longevity in your genes. You can start receiving benefits as early as age 62; but if you do, your benefit could be reduced to nearly 70-75 percent of what you would have received at your FRA.

On the other hand, if you can delay Social Security up to age 70, you could receive a benefit that is between 124-135 percent of what your benefit would have been at your FRA. In addition to the benefits that are based on your own work history, you may be eligible for alternative Social Security benefits, including spousal, survivors or divorced-spouse benefits. Social Security rules are extremely complex, so it’s important to consult with your financial advisor to find the most optimal strategy for your situation.

Don’t forget to enroll in Medicare!

In retirement, you’ll also need to make a few important decisions regarding your Medicare benefits. First, determine what type of coverage you need and what premiums you can afford. There are two types of Medicare coverage: Part A, which covers your hospital expenses, and Part B, which is your health insurance coverage. Though both options can work in tandem, it’s important to note that coverage does not overlap.2 In addition to Parts A and B, many retirees also elect Medicare Part D, which is prescription drug coverage; however, keep in mind that several other supplemental plans are available to fill gaps in coverage.

Normally, you must enroll in Medicare during your initial enrollment period, which starts three months before you turn 65 and ends three months after your 65th birthday. If you do not enroll during this period, you may be subject to penalties and delayed benefits. However, certain situations, such as being covered by an employer’s plan, will allow you to defer enrollment.

Remember to revisit existing 401(k) plan assets

If you are considering rolling over a retirement plan balance from a former employer, there are a few factors you should consider before you pull the trigger. While you may have more flexibility and investment options if you transfer the balance to an IRA, you may also have some additional expenses. For example, your employer’s plan may utilize institutional funds, which carry much lower expense ratios and are not available to retail investors. However, your employer’s plan may be set up so that all expenses are paid by participants, which could be costly to you. Therefore, make sure you weigh all the pros and cons before you decide to pursue a rollover.

Make sure to take your required minimum distributions (RMDs) on time

Typically, when you reach age 70 ½, you must begin taking distributions from your retirement accounts, including IRAs, SIMPLE IRAs and SEP IRAs, as well as 401(k), 403(b), 457(b) and profit-sharing plans. Since the day you started contributing to these accounts, you have enjoyed tax-deferred growth on your savings — and unfortunately, 70 ½ is the age at which Uncle Sam decided he would start collecting taxes from you. However, if you are still working at age 70 ½, you have the option to delay your RMDs until you retire, unless you own five percent or more of the company.

Failing to take RMDs each year comes with a pretty severe penalty — a 50-percent tax on the amount of the distribution. You must take your distributions by December 31 of each year, but if this is your first year taking distributions, you have until April 1 of the following year in which you turned 70 ½. For example, if you turned 70 ½ any time during 2016, you have until April 1, 2017, to take your first distribution. Keep in mind that your second distribution will still be due by December 31, 2017.

One type of retirement account that does not require RMDs is the Roth IRA, since original contributions are made to the account on an after-tax basis. An interesting side note to this is that Roth 401(k) plans do require RMDs; however, those distributions would not be subject to tax.3


More retirement tips are on the way. Check out Part II of Carolyn's checklist, which covers everything from planning your distribution strategy to updating your portfolio.



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The Essential Financial Checklist for 2017 Retirees – Part I

time to read: 5 min