Minor stuff aside, there are some real financial benefits to reaching age 59½, says Kiplinger in the article “What Should You Do When You Turn 59½?” Here are some important tasks to accomplish when you turn 59½, that will help you explore new opportunities and build a strong foundation for your future retirement.
Review Your 401(k). At age 59½, you reach the magic age when you can start taking money out of your retirement accounts without penalty. That’s not to say it’s time to drain your accounts, but it does give you more options.
Create a Safety Net. Hopefully you know about the benefits of having an emergency fund. Having a “rainy day” fund, can give you peace of mind.
Until now, your only real options to beef up such a fund were a savings or money market account that couldn’t even keep up with inflation. Now that you’re 59½ and the withdrawal penalty is no longer applicable, you can actually use your 401(k) as a readily accessible, tax-deferred safety net. In a retirement account, you can also invest some of the funds for growth. You should still keep a bit of cash for emergencies. In addition, withdrawals from retirement accounts will be taxable, because you’ve never paid taxes on that money.
Take Advantage of Catch-Up Contributions. The IRS lets people age 50 and older contribute extra to their retirement accounts, including both IRAs and employer-sponsored accounts. This not only builds your retirement savings, it can decrease your taxable income. A lower income can keep you in a lower tax bracket and make you eligible for more tax deductions. That saves money on taxes.
Look into an In-Service Rollover. The major complaint with 401(k) plans, is the lack of investment options available within a given plan. The average 401(k) plan has fewer than a dozen options, according to FINRA. Compare that with the variety of options available on the open market. Once you hit 59½, you may be eligible for an in-service rollover, which lets you to move 401(k) funds into an IRA without penalty, while still working at the same job. It’s a unique opportunity to access better investments that is not available to most workers. There are more investment options within an IRA and greater flexibility and control.
Monitor Your Spending. One of the tough things about retirement planning when you’re younger, is that you have almost no idea what your retirement needs will be. However, at 59½, it’s near enough that you should have a better sense of your needs during retirement.
Start tracking your spending to create a retirement budget. This will help you decide when to retire, because you’ll be able to see the trade-offs between working longer and the lifestyle you’ll be able to afford in retirement.
Remember Health Care. Start to consider your health care. A common mistake people make when retiring early, is to neglect health insurance. While you can access your money penalty-free now, you don’t have access to Medicare until age 65. If you’re playing with the notion of retiring before 65, start looking into your health care options now and make certain that you have coverage until you reach Medicare eligibility.
Review Your Estate Plan/Create A Plan. If you haven't created an estate plan, now is the time. Also, if you have created one, we recommend it be reviewed every 2-3 years to make sure it keeps up with your assets and beneficiary.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
Reference: Kiplinger (June 28, 2019) “What Should You Do When You Turn 59½?”