Retirement, What I’ve learned
In the two months leading up to my retirement, I have discovered some things that in hind site might be useful to those about to retire. In googling topics about retirement I was able to find out what to do, and how to build up a retirement but rarely anything about the final days of retirement.
Here is what I learned:
- Get everything on the table prior to signing papers. Options available to you, insurance? Dental? Life insurance? Payout perks? Deferred tax plans?
- Will your pension be cut when you reach social security age? If so, by how much? I discovered my brother-in-laws pension will be cut by half when he begins collecting social security. When I inquired about this with my HR they told me that was not so for me. My pension amount will never change. And that includes cost of living increases.
- If you have payout perks like longevity, a severance package, accrued time, etc., ask what the tax brackets are on those things. Some classify as a bonus for tax purposes, which means you will have a significant tax burden. In that case try to transfer funds to a tax deferred option like a Health Savings Account (HSA). It is only used for health expenditures but you get every penny without penalty.
- If you are looking at a HSA some questions to ask are: is there a limit? Do I have to spend it within a certain time frame? Is there ever a risk of losing it? What can be paid using a HSA? How do I spend it? Credit card? Reimbursement?
- While we are on the subject of taxes, if you do have perks like longevity or a severance package considered a tax exempt status for you last pay period. It will yield more money in your pocket. But be careful with this one! if your check stub shows that your federal tax is 10 percent of your gross wages you will likely not owe anything at tax time. If it’s anything less than ten percent you are most likely going to have to pay in. In that case the exempt status is not an option for you.
- You may also want to know what taxes are taken out of your pension.
- Retirement payout date and last pay period date. You will want to make sure that the time between these two is a few days as possible. It will help in adjusting your finances. For example, I chose to retire at the end of the month because my pension check will arrive on the 18th of every month. That means, since I get paid every two weeks, I will enjoy a full pay check on the 6th. Two weeks later my pension will be in the bank.
- How many days of the month do you have to work to get credit for that month on your pension? My original retirement date was August 11th, if I had retired on that date I would not have gotten credit for the month of August. At my job you have to be on the job two weeks of the month to get credit for it.
- What are the retirement stipulations? When is the last time you can use your paid time off? I had to have perfect attendance for the last two weeks!
- Finally, if you have the option to save towards retirement using a deferred tax retirement plan, consider NOT taking advantage of the deferred tax option. That is because you will not have to pay taxes on it when you reach the age that you can draw on it. Of course, the tax deferred option puts more money in your check at the time, but consider this: A deferred savings of $23,000 will require a tax burden (withheld) of approximately $7,000. I would have rather that whole amount be rendered to me.
Always pay yourself first! As seen in the article, there are no guarantees. Especially when we put our trust in others to do the right thing. Once you start contributing, you will adjust to the amount being withheld from your paycheck and never miss it. And, increase your contribution:
- When you get a raise, increase your contribution.
- If you have retirement payment benefits and your spouse does not, increase your financial contribution. you will be glad you did.
- If you both have the benefit, look at whose is the best and contribute more to that one.
Food for thought
These are legitimate things to consider and can have a significant impact on your quality of living in retirement. My husband and I did not plan for retirement by way of savings. However, I am not worried about our finances. I know, and have faith, we will be okay.
Hope you have enjoyed the post and that it helps you in some way!