One of the biggest changes you’ll experience is transitioning from steady employment to retirement. If you’re counting the days till your retirement party and final good-byes from your colleagues, it’s important to think about a significant shift in your daily life.
Before you write your bucket list, consider the obvious first – replacing your income. You’ve spent the last 40 or more years accumulating capital assets; now it’s time to think about how you’ll convert those assets into income you can live on, day to day.
Depending on your age and the types of assets you’ve built up, you have choices from where to begin making distributions. After any sources of income, such as pensions or social security, you should next consider your current and future tax bracket to decide where to withdraw funds. If you’re not yet 70 ½, you don’t have to draw from your IRAs or other qualified retirement accounts, but you may want to start distributions early if you are in a low tax bracket.
For example, if you retire at 65, you’ll have approximately five years before you’re required to start any IRA distributions. During these years between ages of 65-70, you will likely be in your lowest tax years and may want to shift future income from IRA distributions to these years by making early distributions. With proper planning, this can reduce the overall tax liability over your life.
Non-financial decisions are also important to consider. When you make the shift from going to work every day to staying at home, it can be fun and relaxing for a time – until you get bored and miss the camaraderie of your colleagues. Having a purpose, such as volunteer work, is important to occupy your time and keep you mentally and socially engaged.
Retirement may seem like a good opportunity to move closer to family, such as kids and grandkids that live in another location, but instead, consider making trips to visit while keeping your current home and a familiar place to return to. Permanently moving away from home and leaving behind friends, familiar places, and your community can be difficult to handle if you are unprepared emotionally.
However retirement looks for you, whether you travel to exotic locations, play golf at your club, or simply sit in the park to read a book and feed the birds, you should be well prepared so you can really enjoy the retirement years you’ve earned.
Sergio Garcia is not affiliated with Raymond James Financial Services, Inc. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Opinions expressed are those of the author and not necessarily those of Raymond James. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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