Do you see 2025 as the year you finally ditch your daily commute in favor of days spent traveling, resting, or pursuing long-held dreams? You are not alone. Many soon-to-be retirees are planning a new chapter-but hang on. Before you sail off into the sunset, you need make a few important financial decisions.
Below, we'll look at the top five "must-dos" for retiring with confidence, which include anything from ensuring you don't outlive your assets to timing your Social Security payments perfectly. Because, let's face it, retirement is more than just a day on the calendar. It's a financial shift, and you want it to go smoothly.
1. Reevaluate your retirement savings
First, let's examine the pulse of your nest egg. Retirement is often longer than you realize, and surviving 20-30 years after your last income necessitates a strategy.
Key Action Steps
- Calculate your "Magic Number": Determine how much you'll need each month to support your lifestyle. Then consider inflation (which may rapidly erode your purchasing power).
- Add up your accounts: Check your 401(k), IRA, brokerage accounts, and any pensions or annuities you may have. Here's your "big picture."
- Stress-test your finances: Could you withstand a rapid market dip? A significant medical expenditure? A change in your family's demands (such as assisting grandchildren with college)?
Pro Tip: If you recognize you're falling short, it's not game over. To save money, you may work an extra year or two, take on part-time jobs, or downsize your house.
2. Navigate RMDs (Required Minimum Distributions) with ease
If you've invested in tax-deferred funds like a Traditional IRA or 401(k), the IRS expects you to begin collecting RMDs when you reach a specific age (currently 73 for many retirees, but the regulations might change, so keep informed). Missing an RMD might result in significant fines.
Why It Matters
- Avoid penalties. The IRS penalty might be a portion of the amount you were meant to remove. You might have spent that money on anything else.
- Plan for taxes. RMDs are typically taxed like regular income. If you're approaching a higher tax bracket, you should consider when and how much to remove.
- Bottom Line: Work with a tax expert (hello, that's where we come in) to plan your withdrawal timeline and minimize your tax burden.
3. Understand Social Security. Timing for Maximum Benefits
Social Security might be a crucial part of your retirement income. However, determining when to claim-at 62, full retirement age (FRA), or at 70-can significantly affect your monthly income.
What You Need To Know
- Early Claim: You may start receiving benefits at age 62, but your monthly payout will be much lower than if you waited.
- Full Retirement Age: For boomers, often between 66 and 67. At FRA, you get your usual benefit amount.
- Wait until 70: Each year you postpone your FRA, your benefit increases by around 8%. That's a significant advantage if you can afford to wait.
Pro Tip: Consider if you have any other sources of income in the meanwhile. If your nest fund can sustain you for a few more years, waiting until you're 70 may be worthwhile.
4. Don't Forget Tax Considerations
Even in retirement, taxes might reduce your income. If you're selling a company, drawing from several accounts, or receiving Social Security, your tax situation may be much more complicated.
- Considerations when selling a business: Capital gains taxes may apply depending on the transaction structure.
- Partial Year of Work: If you retire mid-year, your combined salary and retirement payments may put you in a higher tax rate.
- Social Security and taxes: If you earn more than a particular amount, up to 85% of your Social Security payments may be taxed.
The Good News: With proper preparation, we can assist reduce the tax burden. You may retain more of your earnings by timing your distributions, taking advantage of deductions, and contributing strategically.
5. Consider Part-Time Work (Because You Might Want It)
Retirement does not have to be an all or nothing affair. Some retirees discover that part-time employment may supplement their income while also keeping them active.
Why You Might Consider It
- Extra padding: Even a tiny consulting or freelance income might help you postpone or minimize your yearly Social Security payments.
- Smooth Transition: Going from a full-time job to nil might be disorienting. A part-time schedule allows you to ease into your new lifestyle.
- Work provides opportunities for social engagement and skill development.
Ready to make 2025 your year? Let's talk.
Retirement has many moving elements, whether you're selling a company, navigating RMD requirements, or developing a Social Security plan, and the choices you make now will have long-term consequences for your financial life.
That is where we step in. We help you gain a clear picture of your retirement budget, create a tax-management strategy, and guarantee your money lasts as long as you do.
Let us get started.
Don't know whether your nest egg will last? Are you wondering whether a part-time job may boost your bottom line-or if postponing Social Security is really worthwhile? Contact our office for an honest discussion about your retirement objectives. We'll help you put the jigsaw together so that 2025 may be the year you retire with confidence.