Whether you’re planning on retiring soon or not, turning 59½ is a milestone to be celebrated. First off, it’s great that you’re healthy and can enjoy the fruits of your labor. Secondly, it marks a time where you can take advantage of your retirement accounts without incurring a penalty.
At this age, you can withdraw from your employer-sponsored plans, such as a 401(k) and 403(b), and your IRA accounts, without needing to pay the 10% early withdrawal penalty. However, that doesn’t mean you should count on this money as part of your regular income just yet.
Here are some things to consider when you turn 59 ½.
Consider Using Your Investment Accounts As A Safety Net
If you’re not thinking about retiring just yet, consider putting more money into your retirement accounts. You might as well let your money earn some interest since savings accounts can only earn you so much. In the event of unemployment, you can dip into these accounts without worrying about paying any penalties.
Of course, investments aren’t totally liquid, so don’t put everything you’ve got in there. But if given the opportunity to add more (the IRS allows those over 55 to add extra money in retirement accounts), consider doing so.
Another viable option to potentially improve your investment options is to look into a 401(k) in-service rollover. Many workplace retirement plans only offer limited investment choices, and some of those choices aren’t the most favorable options for your money. An in-service rollover allows you to move a portion of the funds in your current 401(k) into an IRA and gives you greater flexibility, more choices, and more control. If you are 59½, you won’t incur the 10% early distribution penalty and you can take advantage of this little-known feature even if you are still working for your employer and contributing to the 401(k).
Create A Retirement Budget
Creating a budget is a good practice no matter what age you are, but it’s especially important as you draw closer to retirement. Mapping out your expenses and income will help you create a few scenarios to determine if you can retire early and what your income will look like at different points in your retirement. Remember, your social security benefits don’t kick in until you’re 62. That means if you decide you want to retire before then, you’ll want to create a budget that doesn’t take Social Security income into consideration.
As for the types of budgets you want to make, consider creating a bare-bones budget (e.g. what you absolutely need to get by on), and one where you incorporate things you want to do. For example, you can cut out high transportation costs since you won’t need to work, but you can add that back so you can fund your dream vacation.
Playing around with the numbers helps you to see how much you’re projected to spend as well as gives you an indicator as to how much you may still need to save until you actually retire. This would be a good time to see where you can currently cut back on your budget to increase your savings for retirement down the road.
Take Care Of Your Health
If you retire before you turn 65, you’ll need to think long and hard about health care. That’s because Medicare doesn’t kick in until you’re 65. This would be a great time to think about dipping into your HSA for qualified medical expenses (if you have one) or researching healthcare premiums so you’re covered until Medicare kicks in.
If you’re feeling overwhelmed at planning for retirement or figuring out how to manage your finances at this stage in your life, it’s useful to work with a professional who has worked with those in a similar situation as yours. Feel free to contact me today to learn about the specifics of the types of decisions you need to make when you turn 59 ½. Email me at email@example.com or call 800-491-4508 or click here to book your free introductory meeting.
Mark Trice is an independent financial advisor with nearly a decade of experience in the industry. As the founder of ClearVista Financial, his mission is to help people find financial balance in their lives and to spend life well. Along with providing financial planning and retirement planning to pre-retirees and 401(k) plan participants, he is also an educator. He currently holds the designation of a Certified Financial Educator® through the Heartland Institute of Financial Education. Mark has offices in Austin, Brownwood, Temple, Houston, and Waco, Texas. Along with serving clients in Texas, he also works with individuals in California, Colorado, West Virginia and Virginia. To learn more, visit www.clearvistafinancial.com or connect with Mark on LinkedIn.