By Larissa Mehlfelder, CFP®, CAIA
If you’re nearing 59½, don’t fret too much about getting old. After all, 60 is the new 40, right? There are many 50- and 60-year-olds who are in prime health and feel like they are just hitting their stride. Not to mention the often-forgotten benefits of getting older, like discounts at restaurants, retail stores and on travel. (1)
Minor stuff aside, there are also some real financial benefits to reaching age 59½. Here are four things to do when you turn 59½ that will help you explore new opportunities and build a strong foundation for your future retirement.
Reevaluate Your 401(k)
Fifty-nine and a half is the magic age when you can start taking money out of your retirement accounts without penalty. That doesn’t mean it’s time to drain your accounts, but it does give you more options.
Use It As A Safety Net
By now you’ve probably discovered the benefits of having an emergency or rainy-day fund. Having some cash set aside gives you incredible peace of mind because you know that if an unexpected expense comes up, you’re prepared for it.
Up until now, your only real options for such a fund were a savings or money market account that at times couldn’t even keep up with inflation. Now that the withdrawal penalty is gone, you can actually use your 401(k) as an easily accessible, tax-deferred safety net. In a retirement account, you can even invest some of the money for growth, though you do want to keep some in cash for emergencies.
Make Catch-Up Contributions
The IRS allows people over age 55 to contribute extra to their retirement accounts, both IRAs and employer-sponsored accounts. Doing so will not only build up your retirement savings, but it can lower your taxable income. A lower income can keep you in a lower tax bracket and make you eligible for more tax deductions, which saves you money on taxes.
Consider An In-Service Rollover
A common complaint regarding 401(k) plans is the lack of investment options available within a given plan. Usually you have 15-20 options, (2) compared to the seemingly infinite options available on the open market. Once you reach age 59½ you may be eligible for an in-service rollover, which allows you to move 401(k) funds into an IRA without penalty even while you still work for the same employer.
This is a very unique opportunity to access a wider variety of investments that is not available to most workers. Not only do you have more investment options within an IRA, but it also gives you greater flexibility and more control.
Track Your Spending
One of the hard things about planning for retirement when you’re younger is that you have almost no concept of what your income needs and spending habits will be so far into the future. While you may not be planning on retiring for quite some time, it’s still close enough that you have a better grasp on what your needs will be.
Now is the perfect time to start tracking your spending in order to create a retirement budget. Having a detailed budget for retirement will help you determine when to retire as you will be able to see the trade-offs between working longer and the lifestyle you’ll be able to afford in retirement.
Don’t Forget Healthcare
Now is an important time to be thinking about your healthcare. It’s easy to assume that it’s safe to retire now that you have access to all of your retirement savings or even if you wait until you’re 62 and can start receiving Social Security benefits. The mistake that people make when retiring early is forgetting about healthcare.
Even though you can access your money penalty-free now, you don’t have access to Medicare until you are 65. If you’re playing with the idea of retiring before 65, start researching your healthcare options today. Whether you make use of COBRA or buy an individual policy on the exchange, you need to make sure you have coverage until you reach Medicare eligibility.
Consult A Financial Professional
As you can see, if you decide to start tapping into your accounts, it’s important to do so in the right order.
The “right order” is different for everyone, can make a significant financial impact, and requires some planning. This is where a financial advisor comes in. A financial advisor can help you make the best decisions with your accounts and avoid any costly mistakes.
If you’re interested in creating a personalized distribution plan with the goal of maximizing the lifetime value of your accounts, we at Simon Quick Advisors can help.
About Larissa Mehlfelder
Ms. Mehlfelder joined Simon Quick in June 2009 with prior experience in wealth management and investing. As a Client Advisor based in Morristown, NJ, she works with clients in developing and implementing their financial planning objectives. Throughout her wealth management career at other boutique financial advisory firms, she has gained valuable experience monitoring client investments and spearheading strategic marketing efforts. Ms. Mehlfelder earned a BS degree in Finance with a minor in Mathematics from The College of New Jersey where she maintained Dean’s List status. She completed Fairleigh Dickinson University's Program for Financial Planners in 2011 and became a CERTIFIED FINANCIAL PLANNER™ practitioner in 2012. She earned her CAIA Charter in March of 2014 and is a member of the Chartered Alternative Investment Analyst Association. To learn more about Larissa visit her LinkedIn.
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