So you’ve decided to hang ‘em up? Congratulations! Retirement is an extremely personal decision and is made for a multitude of reasons. Many of our clients have had the ability to retire for several years, however, they have now reached a point where the weekly grind isn’t as enjoyable as it once was. There are probably thousands of things running through your head. What will life look like without work? How will I spend my days? Where do I/we want to travel? Do I want to work part-time or volunteer? With so many emotions and thoughts, it can be easy to miss good opportunities to really maximize your final year of full-time work. How do you get the most “bang for your buck” in your final year of working full-time?
Maximizing your employer retirement contribution (401k, 403b, etc.)
If you aren’t doing so already, do your best to maximize your company retirement plan contribution. If you are retiring mid-year, adjust your payroll deduction to make sure you are contributing the maximum ($24,000 for those over the age of 50 in 2015) by the time you retire. If monthly cash flow won’t allow for it, consider using money in a checking/savings or taxable account to supplement your cash flow so you can put the max into the plan. This will most likely be the final year you will be in the highest tax bracket of your life, you really want to take advantage of this and get the maximum tax benefit.
“Front-load” your charitable contributions
If you are charitably inclined and plan on making charitable gifts, even into retirement, you might consider “front-loading” your donations. Think of it this way – if you are currently in the 25% tax bracket and you will drop into the 15% bracket when retired, donating in which year will give you the most tax savings by making a donation? The year you are in the higher bracket, of course! So if you donate $5,000/year to charity, consider making a contribution for $25,000 while you are in the 25% bracket (ideally with appreciated securities). This would satisfy five years worth of donations and save you more on your taxes. As I always tell clients: When you save more money on your tax bill by gifting efficiently, you give less to the IRS’ and more to the organizations you care about!
Explore your health care options
This is typically a retiree’s largest expense. How will you and your family go about obtaining medical coverage upon retirement? Will you continue to receive benefits on your employer plan? Will you go on COBRA? Will you be age 65 soon and enroll in Medicare? Are you retiring young and need to obtain an individual plan until Medicare kicks in? No matter what your game plan, make sure you talk to the experts and have a firm grip on the cost and steps you need to take to ensure you don’t go without coverage and that it’s as affordable as possible. With recent changes in health care, we are positioning more and more clients in a way to qualify for health care premium subsidies under the Affordable Care Act (“Obamacare”). For more information on how you might qualify, take a look at Matt Trujillo’s recent blog on this topic.
With so many moving parts, it really makes sense to have someone in your corner to help you navigate through these difficult and sometimes confusing retirement topics and decisions. Ideally, seek out the help of a Certified Financial Planner (CFP®) to give you the comprehensive guidance you need and deserve!
Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s Money Centered and Center Connections blogs.
Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. C14-041996