When you retire, your income will most probably be lower than when you were working, and while your expenses will be lower in some areas — no more commuting — they’ll be higher in others — more prescriptions and doctors’ visits.
You’ll be balancing your Social Security benefits, Medicare premiums, taxes and savings, along with higher or lower inflation and possible market downturns, to realize that economic shifts make your plans somewhat unpredictable.
Keep these details in mind:
- Social Security payments are linked to cost-of-living adjustments and usually go up. The benefit boost provides a measure of protection against rising prices when the inflation rate inches up.
- Medicare premium costs for Part B rise and fall. Many enrollees have Part B payments deducted directly from their Social Security payments, but this can reduce some of the COLA boost.
- Dividend-paying stocks might help combat inflation because dividends tend to increase from year to year and the stock price of the investments is likely to rise over time too. However, market fluctuations may affect stocks and dividends, keeping them from going up each year.
- Even though their dividends do not increase, Treasury Inflation-Protected Securities bonds adjust their value in line with inflation; this might provide a hedge against market fluctuations. Another option would be to buy annuities with inflation-adjustment features built in.
- Most types of retirement savings accounts require minimum distributions for people 73 years (starting in 2024) or older. (This is not true of Roth IRAs, Roth 401(k)s and Roth 403(b)s.) The IRS uses a calculation based on the account balance and your life expectancy to determine the minimum you must take out each year. The withdrawal will be taxed at your regular federal income tax rate.
- If you sell investments in taxable brokerage accounts to access cash, you may be subject to capital gains tax.
- You can count on getting a bigger standard tax deduction if you or your spouse is 65 years old or older.
- The date on which you hit full retirement age is inching up based on birth year. In 2024, you can start collecting benefits at a minimum age of 62, but your monthly payment will be permanently reduced by 30%. You also can wait past full retirement age and reap Social Security’s bonus for delaying benefits — an extra 8% a year until age 70. To get an idea of how much you can expect to receive based on when you claim benefits, set up a my Social Security account on the Social Security website.
- Health care costs are easy to overlook, but failing to plan for them can lead to disaster in retirement. Fortunately, there are ways to try to shrink your health care costs by being as fit and healthy as possible and by seeing your doctor for preventive screenings and care. If you are 65 years or older, money in Health Savings Accounts can be withdrawn penalty free and used for anything, though the money will count as taxable income. To participate in an HSA, you’ll need to have a qualifying high-deductible health insurance plan, and there are yearly contribution limits, with people ages 55 and older allowed to contribute additional funds.
- It makes sense to head into retirement with as little debt as possible (ideally without any), so you can make the best use of your retirement dollars.
Advice on retirement these days includes working longer, which can reduce the long-term effects of inflation. It also means you can keep making contributions to your investments and retirement accounts while not withdrawing from your savings.
