Pre-Retirement List

At Thanksgiving, my son-in-law was asking me a number of financially related questions about retirement.  He’s about 10 years away from retirement, but he knew I retired last year, so it was fresh in my mind.  I created the following pre-retirement list for him to think about.  Update: The list has been updated based on comments from the HD community.

 HD Community:  Are there any financially-related things you did to prepare for retirement that aren’t listed below?  Any ‘gotchas’ you experienced that could be avoided?

PRE-RETIREMENT:

• Pay off Debt: Fortunately, we didn’t have any car loans or credit card debt (> 30 days). When the standard deduction was increased as part of the 2017 Tax Cuts and Jobs Act (TCJA), we paid off the remaining balance of our home mortgage.
• Emergency Fund: Now that we didn’t have a house payment, we were able to increase our emergency fund for peace of mind.
• Consolidate Like Accounts: Over time, we accumulated multiple 401k accounts, Traditional IRA accounts, Roth accounts, HSA accounts, and/or brokerage accounts.  We consolidated like accounts across two firms.  I also transferred my HSA account to Fidelity which doesn’t charge administrative fees.
• Verify Beneficiaries by Account: It’s good to review your account beneficiaries any time, but be sure to verify them after you consolidate or transfer accounts. I’ve been surprised in the past to find accounts that did not have beneficiaries on file.  Note the comments below re: putting your home & other property in a trust.
• Roth Conversions: I plan to do some Roth conversions (fill up the 12% bracket) before I start my RMDs, so I set aside funds for taxes while still working.
• Get Educated: Research the following topics to be better prepared to answer key questions when the time comes.  Why?  You’ll make a better decision if you know the terminology, nuances, and ramifications of your decision.  And in some cases, your decision is irreversible or can be challenging to change.
  • Pension: Should we take a lump sum or monthly payments?
  • Social Security: When should we start collecting social security?
  • Medicare supplement: Should we choose Medicare Advantage or Medigap supplement?
  • Annuity: Should we purchase an annuity that pays lifetime income?  When should the annuity start?
  • Spending: What is our withdrawal strategy?
  • Bridge the Gap: Do you have an income gap between retiring from work and collecting social security? See the Forum topic ‘Bridge the Gap’ for an HD discussion on strategies.
• Home: Do you plan to stay in your current home or are you considering moving or downsizing?
• Home Maintenance: Are there any repairs in your current home that need attention?
• Get Rid of Stuff: Are there things that can be sold or donated?  My brother stayed with us for a couple of months and, one weekend, he decided we should clean out the attic above the garage.  My brother’s enthusiasm was contagious and by the end of the weekend we had three piles ready to go: donation, trash, and a local auction dealer. I can’t imagine dealing with this task when we sold our home and downsized 5 years later.
• HSA: Once you enroll in Medicare Part A and/or B, you are no longer eligible to contribute to your HSA.  Plan ahead to determine how much you can contribute to your HSA before enrolling in Medicare, and when to stop HSA contributions to avoid exceeding the limit for the calendar year (prorated). If you plan to continue working after age 65, you may need to stop your HSA contributions up to 6 months prior to taking Medicare or face a 6% excise tax on excess contributions and earnings. If you aren’t able to stop your HSA contributions in time, work with your HSA administrator to remove the excess contributions and earnings from your HSA account.
• HSA Medical Expenses:  Keep track of your medical, dental, vision, and other qualifying HSA expenses.  You may want to file those receipts that were paid by the HSA with your tax papers (1099-SA support) in case you are audited.  And keep a separate file of those expenses that you paid out-of-pocket.  Those can be reimbursed from your HSA account at any time, tax-free, as long as the qualifying expense was incurred after your HSA was established.
• Health Check-up:  If you currently have strong health insurance through your employer, consider scheduling comprehensive check-ups before giving notice. This includes routine medical, dental, vision, dermatology, etc. appointments, along with a full panel of recommended blood work. You might also review whether you need new glasses or contact lenses (including prescription sunglasses), and address any pending dental work such as replacing old crowns or evaluating an old root canal.  Many of these costs may not be covered by Medicare or a Medicare supplement.
• Retirement Benefits Strategy:  Develop a strategy of when you will start your pension, Medicare & Medicare supplement, and Social Security.
• Plan Ahead on the timing of all your decisions. Understand the approval lead times (may be up to 4-6 weeks) for Social Security, Medicare, and Pension applications.