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Pre-retirement Checklist: Social Security, Pension Benefits, Medicare, and Estate Planning

From Fidelity.com

To help make your transition into retirement a successful one, there are several issues you should consider. These activities are best conducted with the participation of a spouse, partner or other family members, as retirement is often a significant point of change for the entire family.

1. Help Protect Your Retirement Savings

Reduce Debt

Start your retirement debt free. Keep in mind that credit card interest rates are higher than the returns on investments, so pay off credit card debt as you're able. Reduce mortgage debt if your retirement income will drop substantially and you won't benefit from the tax deduction opportunity. Finally, eliminate car payments.

Establish a Cash Emergency Fund

Fidelity believes that everyone should have enough cash to cover at least six months of expenses without having to tap into investments that are subject to market fluctuation or retirement savings. Whether it's car repairs or home maintenance, preparing for the unexpected is not only smart, but will likely decrease the stress associated with such an event.

You'll want to make sure the funds are in a liquid, interest-bearing account; that way, you can access it without penalty if needed, while at the same time, potentially allowing it to grow. Lastly, remember to replace emergency funds as you use them, so they're available the next time something unexpected pops up. See Where Should You Consider Saving? to learn more.

Get Adequate Insurance Coverage

Your insurance needs may change in retirement just as your financial priorities and responsibilities change. Make sure to periodically review your life, health, homeowners', and auto insurance policies so that you have the coverage to protect your family and your retirement savings in case of a home catastrophe, acute or chronic illness, or death.

Keep in mind that prescription medications or other medical expenses may no longer be covered by your employer or insurance, so investigate how your health coverage and needs may be impacted after you retire.

  • Make sure you have enough insurance.
  • Learn more about long-term care insurance. You can also find information here about coverage to supplement Medicare ("Medigap" insurance) and the general topics of long term care and long term care insurance.

2. Create a Retirement Income Plan

Realistically estimate your income and expenses so that you don't outlive your assets. Tracking your expenses will give you a clear understanding of your likely retirement expenses — both essential and discretionary. Fidelity's Retirement Income Planner* provides a detailed budget worksheet that lets you estimate your expenses more comprehensively — you can even enter variable figures for one-time expenses or those that will end in a specified time period, like repaying a car loan or paying off your mortgage. A detailed income plan helps to ensure that your money lasts as long as you need it.

3. Know When to Apply for Medicare

Depending on your age and whether you're receiving or plan to receive Social Security, the Medicare application process, timelines, and premiums may vary. Note that applying late may result in delayed benefits and higher premiums. The resources listed on the Medicare site can help you determine how and when you should apply for Medicare.

Learn more about Medigap and Other Supplemental Coverage.

Visit www.medicare.gov for detailed information on Medicare.

4. Know When to Apply for Your Social Security Benefits

You'll need to apply for Social Security three months prior to the month of your 65th birthday or three months before you want to start collecting benefits. At the earliest, you may apply at 61 years and 9 months of age, although benefit reductions apply depending on your full retirement age (determined by year of birth) and personal situation.

If your spouse is deceased, you can begin collecting his/her retirement benefits at age 60, or at age 50 if you are disabled. Note: You will not get the entire benefit to which your spouse was entitled.

Because the rules and options can be rather complex, you may want to speak with a Social Security representative in the year before you plan to retire.

Learn more about when you should begin collecting Social Security benefits. Or if you already know when you want to start collecting your benefits, consider having your checks directly deposited to your Fidelity account.

5. Select Pension Benefits and 401(k) Distribution Options

The decision about what to do with your retirement plan assets when you retire can have significant and long lasting financial implications. Know what the best options are for your situation and understand that some of these decisions may be final.

Consolidating assets can be convenient as you near retirement. Leaving funds in a number of places or institutions may make it more difficult to manage your income and your investments because you're juggling statements and putting more time and effort into keeping track of things. You may even qualify for lower account maintenance fees or other price breaks if you consolidate with Fidelity. Many plans allow a lump sum distribution to be rolled to an IRA. Contact a Retirement Specialist at 800-544-4774 for more information.

Be aware of what the process, timelines, and options are for your retirement plan assets and get appropriate documentation from your employer. Note that if you saved money in a 403(b) plan before 1986, you may be able to postpone withdrawals on some portion of your money until you are age 75.

Learn more about how you should take your pension benefits.

6. Review Wills, Trusts, Powers of Attorney, and Beneficiaries

Everyone should have a will, but a will by itself may not be enough to protect your assets and help reduce estate taxes and other costs, so you may want to look into setting up a trust. Also, be aware that a "Power of Attorney" and a "Durable Power of Attorney for Health Care" are not the same; the former deals solely with control of assets while the latter only provides for health care decisions.

Also, keep in mind that unlike other assets such as your house and general savings, retirement assets generally do not follow the instructions that you leave behind in a will. Instead, retirement savings accounts normally pass directly to the beneficiaries you have designated for each retirement account. To that end, it is especially important to keep your beneficiaries up to date. It is also a good idea to understand how your beneficiaries will be paid from your different retirement accounts. Many retirement plans require inheriting beneficiaries to take full distributions in the year following death which can result in a large tax bite for your heirs. Some people find it easier to consolidate their multiple retirement accounts into an IRA — not only to keep their investments on track, but also to ensure their assets are passed correctly. Fidelity IRAs offer flexible beneficiary designations and also allow inheritors to stretch out your retirement savings through an Inherited IRA.

Have your lawyer and/or financial planner review your will, trust, powers of attorney, beneficiary designations, and investment plans to make sure that you and your beneficiaries are appropriately protected.

Often, legal provisions you've made at other life stages may need to be adjusted to be more appropriate for your current situation. Perhaps your marital status has changed or your estate size and complexity is now different than when you originally defined your estate documents — take time to reconsider the relevance and effectiveness of your documents as you near retirement. Make sure that if you or a spouse should become incapacitated, your affairs will be handled in the manner you desire.

* The tool's illustrations result from running a minimum of 250 hypothetical market simulations. The market return data used to generate the illustration is intended to provide you with a general idea of how asset mixes have performed historically. Our analysis assumes a level of diversity within each asset class consistent with a market index benchmark that may differ from the diversity of your own portfolio. Please note that the projections do not reflect the impact of any transaction costs or management and servicing fees (except variable annuities); if these had been included, the projected account balances would have been lower.

IMPORTANT: The projections or other information generated by Fidelity's Retirement Income Planner regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time.

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