The oldest baby boomers will turn 67 in 2013. Many of this first wave have already retired, while others may be contemplating taking the plunge this year. Here are some tips for those planning to retire in 2013:
1. Make sure you are vested in your retirement benefits. While you always get to keep the money you contribute to your workplace retirement account, you don't necessarily get to keep your employer's contributions until you are vested in the company retirement plan. Some retirement accounts don't allow you to keep any employer contributions until you have been with the company for a specific number of years, while others allow you to keep a proportion of your benefit based on your years of service. Make sure you know the date after which you can keep all of your benefits, especially if you have only been with your current employer for a few years. In some cases, it can be well worth it to stick around for a few extra months or years to get a bigger retirement payout.
2. Strategize about when to claim Social Security. Personalized Social Security statements became available online for the first time in 2012, and more than 1 million people have already downloaded them. Check your statement to make sure your earnings were accurately posted to your Social Security record, and make note of how much you will receive from Social Security at various dates. Most baby boomers can claim the full amount of Social Security they have earned beginning at age 66. Boomers who sign up before age 66 will get a reduced payout. Retirees can further boost their monthly payments by delaying their first payout until age 70. You don't have to sign up for Social Security in the year you officially retire. "You have some folks who, by default because they are going to retire, decide to take Social Security, and that's not always the smartest decision," says Robert Oliver, a certified financial planner for Oliver Financial Planning in Ann Arbor, Mich. "You get delayed retirement credits the longer you wait between ages 62 and 70. For most people, it makes sense to wait."
3. Sign up for Medicare on time. You are first eligible to sign up for Medicare three months before the month you turn 65. This initial enrollment period lasts through the three months after that birthday. If you don't sign up during this seven-month window, your monthly premiums will increase by 10 percent for each 12-month period you were eligible for, but did not enroll in, Medicare Part B. If you are covered by a group health plan based on your or your spouse's current employment after you turn 65, you need to sign up within eight months of leaving the job or health plan to avoid the penalty.
People who retire before age 65 will need a plan to maintain their health coverage until they become eligible for Medicare, such as COBRA continuation coverage or a spouse's health plan. "People really need to think about the cost of health insurance, especially if they are retiring from a company that has paid all their premiums," says Connie Brezik, a certified financial planner for Asset Strategies in Casper, Wyo., and Scottsdale, Ariz. "They might not realize how big a part of their budget that is going to be."
[Read: Year-End Retirement Planning Tips.]
5. Develop a plan for spending down your assets. Retirees need a plan for how they will convert their retirement savings into a stream of income that will pay their monthly bills. "You want to be careful not to take too much from your savings too early in retirement," says Joan Gagnon, a certified financial planner for Gagnon Wealth Management in Mansfield, Mass. "You want to have a plan about where to take your assets from and try to stay within the plan." Remember to factor in the income tax that will be due on traditional 401(k) and IRA withdrawals. "If all your money is in a 401(k) or IRA, if you want to spend $100, $30 of that may go to Uncle Sam first, and you only have $70 to spend," cautions Brezik. "You should have funds saved and accumulated outside of those types of accounts to avoid spending a lot of money on taxes."
6. Don't forget to take required minimum distributions. After you turn age 70½, you will be required to take annual withdrawals from your traditional 401(k) and IRA accounts. The penalty for failing to take these distributions is a stiff 50 percent penalty on the amount that should have been withdrawn.
7. Consider maintaining your connection to the workforce. Some retirees find they miss many of the friends and daily challenges they encountered in the workplace. If you still enjoy some aspects of your job, consider shifting to part-time or consulting work instead of pursuing a full-time life of leisure. "Keep an open mind and don't burn any bridges," says Oliver. "Plenty of people think they are ready for retirement, and retire and find that they really enjoy working and at least want to keep working on a part-time basis."