What to Do in the Year Before Retirement Part 3

In the year before retirement, there is a lot to plan to ensure you have met you goals and are financially ready to retire for the rest of your life.

Here are some tips and considerations to think about.

Decide how to handle any employer stock in your 401(k).

If the employer stock has appreciated greatly in value, you may save a bundle in taxes by moving it to a taxable account. If you leave it in a tax-deferred 401(k) or move it to a traditional IRA, it will eventually be taxed as ordinary income when you sell the stock and withdraw the proceeds from the account. But if you move it to a taxable account, part of it may qualify for a lower tax rate when the stock is sold.

Although moving your employer stock to a taxable investment account can have the potential to trim your tax bill, it is not suitable for everyone. If you do use this strategy, your entire 401(k) account must be distributed within a single year. Check with us to see if this choice is right for you.

Apply for your pension.

If you are eligible for a traditional pension, find out when you should apply for benefits. Some organizations may take a few months to process the application.

Also explore pension payment options so you are ready to make the choice during the process. Typically, pension benefits are paid as an annuity or periodic payments (usually monthly) that begin when you retire and continue for the rest of your life. If you are married, the payments can last for both your life and your spouse’s life if you choose. In addition to annuities, the pension plan may offer a lump-sum option that pays you the entire benefit in one payment.

Consider purchasing an annuity.

If the idea of a guaranteed stream of income during retirement is appealing, you may want to consider purchasing an income annuity.

This is a contract between you and an insurance company that promises to pay you an income for life or a specified number of years in return for an upfront premium payment.

If you want the income payments to begin immediately, consider purchasing an immediate income annuity. If you want payments to begin later, consider purchasing a deferred income annuity.

Line up your health insurance.

If you have health insurance through your employer, check with them regarding what steps you must take before retirement.

If you are retiring before age 6, it is important to plan how you will bridge the coverage gap before becoming eligible for Medicare at age 65. Your options may include retiree health insurance from your employer, continued coverage from your employer’s health plan for 18 months under COBRA rules, or an individual policy purchased from an insurance company. If you are married and your spouse has group health insurance from their employer, you may be eligible for coverage under that plan.

If you are retiring around age 65, explore your Medicare options. You can familiarize yourself with all of the options online at www.medicare.gov.

Plan how to handle your stock options.

If your employer granted you stock options, find out how your retirement may affect them. You may have a limited amount of time after you leave the company to exercise your options.

Develop an exit strategy if you own a business.

If you plan to sell your business, it’s a good idea to seek advice about how to structure the deal in a way that meets your objectives and minimizes taxes on the sale.

For assistance in developing a strategy or planning in your last year before retirement, consult with us. With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to provide clarity and calm amidst the chaos. Where there is uncertainty, we look for facts. We call our approach evidence-based investing. Call us today at 877-974-5341 to schedule a strategy session and begin building your road map to financial success.

For more on what to do in the year before retirement, check out Part 1 and Part 2 of this series! 

Article published in January 2021 edition of Eye on Money. If you would like to be added to our mail list please email jennifer@dh-cpa.com.