If you’re a retiree who likes to get important things done on time, you’re in luck! You have the entire year ahead of you to accomplish these five money moves.
Here’s a look at a handful of critical tasks that should be on your to-do list. Even though many months lie ahead until 2019 is over, checking some of them off your list now will mean you’re not overwhelmed at the end of the year.
1. Give yourself a checkup: Are you on track?
At least once a year, give yourself a financial checkup. Look at your financial plan and tweak it to detail exactly how much you need to save every year to amass the amount of money you need for retirement. Review it annually to see if you’re on track.
If you missed a year of saving and investing, up your annual contributions; if your portfolio isn’t growing, you may need to reevaluate your investment style and strategy. Remember that for most of us non-genius investors, low-fee broad-market index funds are easy and effective long-term growth builders. If you’re investing in the stock market on your own, use a buy-and-hold strategy and look for companies you understand that have financial strength and long-term growth prospects.
If an annual checkup sounds like too much of a hassle, hire a good financial planner. These professionals often save you more money than they cost. You can find fee-only planners, who aren’t incentivized by commissions, at NAPFA.org.
2. Take your required minimum distribution
This task is not one you can put off once the year’s over — without paying a big price. People who are 70 or older and who have any retirement accounts that feature required minimum distributions (RMDs), will need to take those RMDs by the deadline. Traditional IRAs and 401(k)s typically feature RMDs that savers must follow or pay a whopping penalty. The government forces you to take a certain chunk of money out of these accounts annually once you’re near retirement age so that it can reap its tax revenue from your money.
The deadline to take your distribution each year is Dec. 31, except for the year in which you turn 70 1/2, when you have until April 1 of the following year to take your RMD. (It can be better to take it before the end of December anyway, lest you end up taxed on two distributions in one year, which might push you into a higher tax bracket.) It’s a good idea to set up your account so that your RMD is sent to you automatically each year.
Here’s why this is such an important item on your to-do list: Failing to take your RMD on time results in a costly penalty — 50% of the amount you were supposed to withdraw, but didn’t. So if you were supposed to withdraw $5,000, you’d forfeit $2,500! (The IRS lets you appeal for a waiver, though.)
3. Adjust or rebalance your portfolio
Tweak your portfolio annually to make sure it remains invested using your desired allocations. Imagine, for example, that you want to be 75% invested in stocks and 25% in bonds, but that over the last year or so, your stocks grew so much in value that they now make up 85% of your portfolio: Sell some shares and buy more bonds to rebalance. Similarly, if you find you aren’t invested in as many international stocks as you’d like, add some.
Meanwhile, if you’re counting on dividend income and some of your dividend-paying holdings reduced their payouts or no longer seem promising, sell them and add the most promising dividend payers you can find.
4. Consider an annuity
Next, if you don’t have a plan in place for a sustainable income stream in retirement, look into buying one or more annuities. Fixed annuities are better than variable or indexed annuities, which often carry steep fees and restrictive terms. Below is a general idea of the kind of income you might expect from an immediate fixed annuity in the current economic environment. (Annuities offer more income when interest rates are higher.)
You might also consider deferred fixed annuities (sometimes called longevity insurance), which start paying at a future point instead of immediately.
For example, a 70-year-old man might spend $50,000 for an annuity that will start paying him $935 per month for the rest of his life beginning at age 80. One strategy to consider is dividing your nest egg into a chunk that will support you for a certain number of years, and spending the rest on a deferred annuity that will support you after that.
5. Reassess your Medicare plan
Finally, give some thought to your health insurance, as healthcare costs are among the biggest expenses you’ll face in retirement. A 65-year-old couple retiring today can expect to spend an average of $280,000 out of pocket on healthcare expenses over the course of their retirement, per Fidelity Investments.
You qualify for Medicare at age 65 and you must sign up on time every year, to avoid paying a penalty premium. The no-penalty enrollment period for most people is anytime within the three months leading up to your 65th birthday, during the month of your birthday, or within the three months that follow.
You can choose between “original Medicare” (Part A and Part B, often with Part D and/or supplemental plans) and Medicare Advantage plans. Original Medicare is standard nationwide, and different Medicare Advantage plans are offered in different regions by different insurance companies.
When deciding, don’t just compare premiums, because Medicare Advantage plans may offer different co-payments, deductibles, and so on. Compare total expected out-of-pocket costs — and know that Medicare Advantage plans cap your out-of-pocket spending, while original Medicare does not.
Weigh other pros and cons of each, too. For example, Medicare Advantage plans typically limit you to a certain network of providers (though some networks can be rather large), like an HMO. If you plan to travel a lot, original Medicare may be preferable as it’s honored by providers nationwide. On the other hand, some Medicare Advantage plans offer limited coverage abroad, which original Medicare does not do. The Medicare website’s Plan Finder can help you compare plans and choose.
Medicare Advantage plans often cost less and generally provide more coverage (often including hearing, vision and/or dental care) — they’re required to offer at least as much as you’d get with original Medicare’s Part A and Part B. Best of all, once you choose, you can change your mind every year during the annual enrollment period, though some original Medicare supplement plans may not allow you to rejoin.
If you address these five important topics every year during retirement, you’ll decrease your stress levels and maximize your financial security.
