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Retirement Planning Does Not Stop When You Retire

You’ve worked hard all your life, taken care of business financially, and now you’ve finally made it—you’re retired. Maybe it happened right on schedule, or perhaps your former employer accelerated your timetable, encouraging you to take an early retirement package. And maybe your nest egg’s just as big as you’d hoped—and maybe it isn’t. But whatever your situation, it’s not time to stop planning just yet. Taking stock now can help you make the most of the years to come. Here are four important questions to get you started.

What are your retirement resources? Not long ago, most retirees had two main sources of income—Social Security and a company pension. Now, it’s a lot more complicated. You may not even get a pension, and you almost certainly have a mélange of other taxable and tax-deferred accounts—traditional and Roth IRAs, 401(k)s, brokerage accounts, and annuities. Maybe you’re expecting an inheritance, or you get income from rental properties. Make a list of everything you have, and consider which are already throwing off cash and which could remain untapped for a while.

What will retirement really cost? You can expect your living expenses to change significantly when you retire. Some will almost certainly shrink. You’ve probably paid off your mortgage and gotten your kids through college. And work-related expenses will likely decrease. You won’t spend as much on clothes, commuting, and work lunches. You may even decide that you and your spouse can get along with one car. That could mean considerable savings on insurance, maintenance, and gas.

Meanwhile, though, other costs are equally likely to go up. Medical expenses, including the cost of insurance, often increase considerably during retirement. As employers cut back on health coverage in general—and for retirees in particular—you can expect these costs to continue to rise much faster than inflation. You might also want to buy long-term care insurance to cover possible nursing home stays. Home maintenance costs and property taxes also tend to spiral upward over time, unless you move to a smaller place or to a state with lower taxes. And you may pay higher utility bills if you spend more time at home.

When should you start collecting Social Security? Chances are, this won’t make up a large part of your retirement income. But as long as you paid into the system for at least 10 years, you’re eligible to begin collecting benefits when you turn 62. If you wait until you reach what the government defines as full retirement age—65 for anyone born before 1938, increasing gradually to 66 for those born in 1943, and then to 67 for people born in 1960 and later—you get the full amount to which you’re entitled, based on the total FICA taxes you and your employers paid. For every year after your full retirement age that you wait to collect, your benefit increases between 6.5% and 8%, depending on the year you were born.

But consider collecting as soon as you’re eligible. The longer you wait, the fewer years you’ll collect, and the longer you’ll have to live to make up for the delay. As you make this calculation, however, also keep in mind that some former employers count a portion of what you get from Social Security as part of your defined benefit and reduce your pension accordingly. This is known as an integrated pension plan. By law, though, an employer with this kind of plan can’t reduce your private pension by more than 50%.

Should you consider staying on the job? While some people still plan to stop working as soon as they’re eligible, increasing numbers of others decide to remain in the work force long past age 65, either because they enjoy what they do or they got a late start on saving for retirement and need to augment what they’ll receive from Social Security and their savings. There’s no financial penalty for continuing to work once you reach full retirement age. At that point, you can earn as much as you like and still receive your full Social Security income. But if you start taking Social Security payments early and continue to work, the amount you get from the government may be reduced.

In 2017, for example, you can earn up to $16,920 if you're between 62 and 64, and up to $44,880 if you reach full retirement age during the year, and still receive your full benefit. Exceed those limits though, and your benefit drops—by $1 for every extra $2 you make through age 64. The year you reach full retirement age, you lose $1 for every $3 over the limit. But even here there's a silver lining. As long as you’re working, you'll contribute to Social Security—and the more you contribute, the more you will be eligible to collect.