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