Issues to Consider in 2025 before you retire + Checklist
Planning for the Next Chapter: A Comprehensive Guide to Retirement in 2025 (and Downloadable Checklist)
Retirement marks a significant transition in life. It's a time filled with excitement and anticipation, but it also requires careful planning to ensure a financially secure and fulfilling future. At Total Clarity Wealth Management, we understand that navigating the complexities of retirement can be overwhelming. That's why we've created this comprehensive guide to help you consider the essential issues before you retire in 2025.
To make your planning process even easier, we've also created a downloadable checklist based on this guide. This checklist, "What Issues Should I Consider Before I Retire?", provides a structured way to assess your preparedness and ensure you don't overlook any critical areas.
The Cornerstone of Retirement: Cash Flow Planning
One of the most fundamental aspects of retirement planning is managing your cash flow. As you transition from a steady paycheck to a fixed income, it's crucial to assess how your income and expenses will change.
- Will your cash flow needs change? This is a critical question to ask yourself. Retirement often brings about lifestyle changes, which can significantly impact your spending habits. Consider developing a new income and expense plan that reflects your anticipated retirement lifestyle.
- Pensions: A Foundation for Income
- Will you receive a pension? If so, understanding your pension options is vital. There may be multiple payout options, such as single, joint, or lump-sum distributions.
- It's also essential to explore coordination strategies between your pension, Social Security benefits, and life insurance policies to optimize your overall financial picture.
- Could there be pensions and/or retirement benefits from a previous employer that you may be forgetting? It's important not to overlook any potential income sources.
- Early Retirement Considerations
- Are you retiring early? Early retirement presents unique challenges and opportunities.
- If you retire before reaching your full retirement age (FRA), your Social Security benefits may be reduced if your earnings exceed certain limits. For instance, in some situations Social Security benefits may be reduced if you earn more than $23,400 and are collecting benefits prior to your full retirement age (FRA) or if you earn more than $62,160 in the year you reach FRA.
- However, you can access your 401(k) penalty-free if you leave your employer after turning 55.
- Social Security Strategies: Maximizing Your Benefits
- Social Security plays a vital role in most retirement income plans. Understanding the nuances of Social Security can help you maximize your benefits.
- Will you or your spouse receive a pension from an employer that did not withhold Social Security taxes? If so, be aware of the potential impact of the Social Security Windfall Elimination Provision or the Government Pension Offset, which can affect your benefits.
- Are you currently married? If so, explore additional Social Security claiming strategies that may be available to you.
- Were you married previously and are you currently unmarried? If so, you may still be eligible for benefits based on your ex-spouse's record.
- If the marriage lasted 10 years and ended in divorce, you may be eligible for benefits under your ex-spouse's record.
- If the marriage lasted more than nine months and ended due to your spouse passing away, you may be eligible for benefits under your deceased spouse's record.
Healthcare and Insurance: Protecting Your Well-being
Healthcare costs are a significant concern for many retirees. Planning for these expenses and ensuring you have adequate coverage is essential.
- Health Insurance Before Medicare
- Will you be retiring before age 65 and need health insurance?
- You are not eligible for Medicare until age 65 (unless you qualify for an exception).
- If you are a Health Insurance Marketplace enrollee, you may be eligible for the Premium Assistance Tax Credit, which could limit the amount spent on premiums to 8.5% of your household income.
- Will you have to change your employer-sponsored health insurance upon turning 65 or upon retiring from your employer? If so, and you are under age 65, you may need to look to COBRA or the Health Insurance Marketplace for coverage. If you are age 65 or over, you may need to sign up for Medicare.
- Medicare and Beyond
- Will you need additional insurance such as vision or dental coverage? Consider these needs as part of your overall healthcare plan.
- Are you contributing to an HSA? If so, be mindful of HSA and Medicare coordination issues.
- Will your MAGI exceed $106,000 (single) or $212,000 (MFJ)? If so, you may be subject to Medicare IRMAA Surcharges.
- Are you disabled? If so, you may be eligible for certain benefits or have the ability to access benefits early.
- Life and Long-Term Care Insurance
- Have your needs for life insurance changed? Retirement can impact your life insurance needs, so it's important to review your coverage.
- Are you concerned about funding long-term care? If so, explore options such as long-term care insurance, self-insurance strategies, and assisted living communities.
- If you have LTC insurance, does it need to be reviewed to ensure that it meets your needs?
Asset and Debt Management: Optimizing Your Resources
Managing your assets and debts effectively is crucial for a secure retirement.
- Investment and Asset Review
- Do you have stock options, grants, or restricted stock units? If so, consider how your retirement affects your rights, and the impact upon your tax liability and your cash flow planning.
- Will your investment objectives or risk tolerance change? If you are a business owner, do you need an exit strategy or a succession plan?
- If you have annuities or illiquid assets, do they need to be reviewed to understand options?
- Do you have a loan on any employer retirement plans? If so, you may need to plan for how to pay it back and be mindful before rolling the balance to another plan.
- Do you have a deferred compensation plan? If so, coordination strategies may exist among other sources of retirement income, to optimize cash flow and manage income taxation.
- Do you have multiple accounts with similar tax treatment (e.g., multiple 401(k)s or IRAs)? If so, consider consolidating accounts to reduce complications.
- Location and Lifestyle
- Will you change your residence? If so, this may impact tax liability, cash flow planning, and your Medicare Advantage plan if you move out of the network.
Tax Planning: Minimizing Your Liabilities
Tax planning is an integral part of retirement preparation. Effective strategies can help you minimize your tax burden and maximize your retirement income.
- Required Minimum Distributions (RMDs)
- Do you expect to have large Required Minimum Distributions? If so, consider strategies to reduce the RMD such as Roth conversions.
- Upon retirement, do you expect your income to be lower? If so, consider deferring any Roth conversions until you are in a lower tax bracket.
Other Important Considerations
- Do you have any unused vacation days? If so, you may be eligible to use them prior to retiring or you may receive compensation.
- Are there any state-specific issues that should be considered (such as unique taxation rules)?
Long-Term Planning: Securing Your Legacy
Retirement planning extends beyond your own financial security; it also includes planning for your loved ones and your legacy.
- Estate Planning
- Do you expect your estate will exceed your unused federal estate and gift tax exclusion amount (maximum $13.99 million, or $27.98 million if you are married)? If so, consider strategies to plan for a possible federal estate tax liability.
- Are you charitably inclined? If so, consider charitable giving strategies to reduce your tax burden.
- Is your estate plan old or possibly outdated? If so, it may be time for a review.
- Do the account beneficiaries need to be reviewed and possibly updated? This includes retirement plans, life insurance, and TOD accounts.
Planning for retirement involves a multifaceted approach. By carefully considering the issues outlined in this guide, you can take proactive steps toward a financially secure and fulfilling retirement. At Total Clarity Wealth Management, we are committed to providing you with the guidance and support you need to navigate this important life transition with confidence.
