5 Actions You Need To Take 5 Years Before Retirement

August 24, 2023

|In One Degree, Retire Confidently

|By One Degree

If you want to retire with success, there are 5 actions you need to take 5 years before retirement.

These actions range from simple things like paying off debts, to more complex like creating a multi-year tax game plan.

5 Actions You Need To Take 5 Years Before Retirement

Resources:

Full transcript:

SPEAKERS

Alex Okugawa & Anthony Saffer

Anthony Saffer 0:00
If you want to retire with success, there are five action steps you need to take five years prior to retirement. These range from simple things like paying off consumer debt to more complex things like creating a multi-year tax gameplan, we’ll walk you through each step.

Alright, so we’ve seen the stats that most people spend more time planning for a vacation than they do for retirement. Now you, that are watching, this is probably not you because you’re proactively watching a retirement video. But Alex, let’s dive right in the number one thing is paying off consumer debt.

Alex Okugawa 0:32
Yeah, we don’t want to go into retirement with bad debt, you’re essentially starting in a hole out of the gate. So number one, don’t go into retirement with bad debt.

Anthony Saffer 0:42
Alright, second, is creating a multi-year tax game plan.

Alex Okugawa 0:46
Yeah, and this is where again, that first step is quite simple. On the surface, this second one can be a little bit more complicated, because really, what you want to do is look at your current tax situation, but you want to do your best to project outward. So what might be my tax obligations over the next couple of years, especially maybe in the first year or two within retirement, trying to estimate that the best you can? So you know, is it a good time to begin doing Roth conversions, maybe you’re someone who gives charitably, perhaps it’s a good time while you still have working income and your income is high, that you fast forward some of your giving.

And there are ways to do that, you know, utilizing things like gifting appreciated assets, rather than cash can help you accomplish that goal. And then I say the last thing here is thinking about how Social Security might be taxed, right, because up to 85%, of one’s Social Security benefits could be taxable, depending on your taxable income. And as a bonus tip, our current tax system is set to sunset at the end of 2025. And so really, what that means is unless Congress takes decisive action, we’re going to go back to what the tax laws were back in 2017. And those tax brackets are actually a little bit higher. So that’s another thing people need to be prepared for, especially looking at the next couple of years heading into retirement.

Anthony Saffer 2:17
That’s right with those law changes, and then just changing income sources, taxes can be a big shift when you’re moving into retirement. And by the way, you’ll notice that we have already talked about a few mistakes, we created a guide called Five Retirement Mistakes to avoid, there are just five major ones that we see retirees often make, we’ll go ahead and post a link to that in the show notes, you can download that for free.

Alright, third, Alex is understanding Medicare premiums as you’re moving potentially off of an employer plan and moving towards Medicare. It’s important we understand how this works.

Alex Okugawa 2:50
Yeah, when you’re a couple of years out really looking at this, right. So when you’re working, you’re probably on your company medical plan. When you go into retirement, you’re going to go on likely Medicare. And so usually your income is much higher in your working years. And a lot of people don’t realize that your income can actually impact your Medicare premiums. And so looking at, well actually, how will my Medicare premiums look like in the first couple of years of retirement is especially important, and that is related to your taxes.

There’s a bonus tip here, which is to be prepared to file at least what the current form is, which is called SSA-44. And it’s kind of like a Medicare appeal form. Essentially, what you’re doing is you’re saying, Look, when I was working, my income was really high. But now that I’m retired, and maybe my income is a little bit lower, therefore I really shouldn’t have to be paying these higher Medicare premiums. Social Security is not going to automatically reach out to you and say, Hey, would you like to pay a lower premium? So unless you take proactive action, and you know about these things, you could be leaving hundreds of dollars a month on the table in premiums that you never had to pay in the first place.

Anthony Saffer 4:01
Because one of the reasons you can appeal that Medicare premiums for a reduction of income may not always be the case for you. But if you are reducing income through retirement, it is one reason to potentially appeal get the lower Medicare premium.

Alright, number four is coordinating the income gap until Social Security begins.

Alex Okugawa 4:19
Yeah, now if you’re retiring before taking Social Security and right and the earliest you can take Social Security is 62. Or perhaps you’re waiting to start Social Security at age 70. To get the highest monthly benefit. You need to have an income plan before Social Security kicks in. And we often call these years your gap years and your gap years are a great time to do a lot of proactive tax planning right before Social Security kicks in. Again, a lot of people don’t know that Social Security is taxable. You want to be aware of that potential tax torpedo.

Anthony Saffer 4:54
Yeah, that’s good. And if you’re enjoying this video, we’d love it if you like and subscribe it helps us reach more people with videos each week to retire with confidence.

Alright, the fifth and final Alex is make sure your investments are aligned with the income that you need generated.

Alex Okugawa 5:09
Yeah you need to be thinking about those early years in retirement because honestly what happens and it can happen, right the first couple of years of retirement, you have a bear market and so your account values go down. So you need to have enough invested in stable assets that allow you to really ride out any type of market conditions that may come your way, a bear market, etc. And it’s a very nuanced subject. So we recorded a video called retirement withdrawal strategies. Folks can learn more about that and more than nuanced details by clicking on the video below.

Anthony Saffer 5:45
As always, if you enjoyed today’s video, please like and subscribe for more. Thanks for watching.

Transcribed by https://otter.ai

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