Preparing for retirement means saying goodbye not only to your co-workers and a steady paycheck, but also to employer-provided benefits such as health insurance and a 401(k) match.Kiplinger’s Personal Finance outlines four steps to take before you retire to get what you need for this new stage of your life.
- Time it right – Companies use various timetables to match employee 401(k) contributions; don’t leave before the last check is written. Also find out the rules for cashing out paid leave.
- Line up insurance – Fewer than 10 percent of private employers offer retiree health coverage so be sure to check out your options including extending your regular employer health coverage or finding cheaper individual insurance. If it’s offered, be sure to sign up health coverage. If you retire before age 65, you can extend your regular employer health coverage through COBRA. You'll pay the full premium.
- Apply for your pension – Five months before you retire, ask for an application and statement that shows your benefit calculation and payout options. Your employer may give you a choice between a lump-sum payout and an annuity. With an annuity, you get lifetime income. With the lump sum, you can invest the money as you choose, but you’ll also have the challenge of making it last as long as you do.
- Position your retirement fund – Weigh the benefits of either staying with your 401(k) or rolling it into an IRA. The IRA gives you more investment freedom, but the investment options inside your employer 401(k) are often cheaper than what you could buy on your own. While you're deciding where to put your savings, track down 401(k)s from previous employers. Consolidating them into a single IRA could reduce expenses and make it easier to manage your investments.
In addition to the four steps recommended by Kiplinger, you’ll
also need to figure out when to apply for Social Security and when to start
receiving benefits. One website to help you is the Social Security
Administration’s Retirement Planner: When to Start Your Benefits. Do other research as well because it's a complicated topic that will significantly affect most consumers' retirement income.
For more information on Kiplinger's four suggestions, visit: http://www.kiplinger.com/article/retirement/T047-C000-S002-countdown-to-retirement-plan-your-exit-strategy.html.