Build your retirement budget, plan for retirement income, and more tips to help when you’re retiring from work.
Retiring from work? Congrats! Whatever your next steps, from part-time work to spending more time with loved ones, this finance-focused checklist can help make the transition as smooth as possible. (And then you can focus on what to do when you retire.)
1. Confirm when your benefits end.
Some benefits may stop the day you’re done with work, but others may not. This list can help in the transition to retirement:
- Upcoming checkups: If you have dental or vision insurance now but won’t when you retire, schedule appointments before your last day while those expenses may still be covered.
- Life insurance extension: To convert a voluntary life insurance policy (one bought or provided by your employer), contact your benefits administrator to get the paperwork started. The difference: You’ll pay the premium directly to the insurance company, rather than having it deducted from your paycheck.
- Health insurance and retirement benefits: More on these topics below.
Tip:Enter your employee benefits or human resources department into the contacts on your phone in case you have questions once you’re retired.
2. Review health insurance options in retirement.
Make this a top priority as you’re planning to retire so you don’t spend any time uninsured. Your options depend on your age.
Options if you’re under age 65:
- Retiree medical coverage through your employer.
- The insurance policy of a spouse/partner (usually, you’ll have to sign up within 30 days of your termination date from your job).
- Coverage through COBRA to continue health insurance for up to 18 months after losing your coverage through work. COBRA can be pricey because you pay the full premium (rather than your employer covering part of the cost). If you have dental and/or vision insurance through your old job, that’s included as part of COBRA, too. However, if you turn 65 during those 18 months, you must apply for Medicare.
- A Health Insurance Marketplace plan. Availability varies from state-to-state and depends on your household income. Visit healthcare.gov to learn more.
Options if you’re age 65 or older:
- When you sign up through Social Security to elect Medicare, you’ll have options like a prescription drug plan and Medicare supplemental coverage. (You don’t have to take Social Security to get full Medicare benefits, but you do have to contact Social Security to sign up.)
Options if you’re a retiring veteran:
- You may qualify for coverage through the Veterans Benefits Administration.
3. Check your health savings account (HSA) funds and flexible spending account (FSA) balance.
- No matter your employment status, you can leave HSA funds in your account and use that money for future eligible health care expenses. Once you sign up for Medicare, you can no longer contribute to an HSA.
- If you have a balance in your FSA, what you don’t use, you lose, so shop for FSA-eligible items. Submit claims for health care expenses (or dependent care) by your termination date so you’ll get reimbursed. (Your employer has a list and its own benefit rules and deadlines for those expenses.)
Tip:If you use HSA funds for unapproved expenses, there are tax implications.
4. Understand your expenses and budget.
As you near your retirement date, consider your budget in the short and long term. If you haven’t tracked your spending in a while, now’s the time.
Pay special attention to things that will likely increase in cost throughout retirement, like health care and travel. Most retirees will spend at least $500 each month on routine doctor’s visits and prescriptions. While you’re working, these costs are covered (at least in part) by your medical insurance, but until you’re eligible for Medicare, you’ll need to plan for these expenses.
In the short term, you’ll have a last paycheck that may include back pay, vacation/sick days, commissions, or a bonus.
You may also have a lag between your last paycheck and when your retirement income strategy kicks in.
“If you think you’ll have a gap, consider increasing your savings in the weeks and months before you leave your job,” says Heather Winston, financial professional and product director for retirement income solutions at Principal®. “If your timing is off, you can also consider delaying your actual retirement date to ensure you have enough.”
5. Decide what to do with your retirement accounts.
“Compare fees, tax implications, and think about when you’ll need to withdraw money,” Winston says. Generally, you’re choosing between these two options:
Rollover your savings from your 401(k) into an IRA.
This is called consolidation, and it offers the advantage of simplification—all your accounts are in one place. While you can’t contribute to a 401(k) after you retire, if you have any earned income, you can continue adding funds to an IRA, which may also have more investment options to choose from. Learn how to start a rollover IRA.
Keep your money where it is.
If you retire or lose your job when you’re age 55 or older* and maintain the balance of your 401(k) with your former company, you may be able to take penalty-free withdrawals between ages 55 and 59½. (This would only be for the 401(k) from the employer you just left and taxes still apply to the withdrawal amounts.) This is known as the IRS Rule of 55. Your company will have rules for payouts, such as limiting withdrawals to being quarterly or annually. Ask your HR contact or consult with a financial professional to learn more about this.
Withdrawing all the money is also an option, but likely not your best one. Depending on your age and the type of the retirement plan you have, if you take out all funds, you could have immediate tax consequences and penalties. And, the savings lose the opportunity for growth, too.
And finally, elect your pension, if you have one available to you. If your current or previous employers offered a traditional pension (also called a defined benefit plan), you may have to decide how it will be paid. Ask your HR contact if you have this benefit.
What's next?
If you have a Principal retirement account from your employer, log in to principal.com to learn about rollover options. Don’t have an employer-sponsored retirement account? We can help you set up your own retirement savings with an IRA or Roth IRA account.
