From budgeting and saving to investing and retirement planning, financial literacy includes a wide range of issues.
Financial literacy, on the other hand, broadens after retirement to cover circumstances that may not have been as important during your working years.
For example, income normally declines in retirement, while expenses may remain constant or even increase, depending on your lifestyle and overall health.
Seniors and those about to retire should examine their plans and make sure they’re ready for the adjustments that come with retirement during Financial Literacy Month.
If you want to avoid any financial landmines in retirement, here are seven issues to learn about.
Social Security
You’ve been paying into the Social Security system since you first started receiving paychecks. However, as you get closer to retirement, it’s important to start thinking about your Social Security withdrawal strategy.
Because your Social Security benefit is based in large part on how much you earn throughout your working career, it pays to maximise your income in whatever way feasible before retiring.
You should also consult a tax or financial professional to determine if you should start making payments sooner, at full retirement age, or later, at the age of 70.
Medicare
Medicare is a health-insurance programme for the elderly, but it’s a complex system with many moving components. You’ll need to learn how it works in order to use it properly.
In a nutshell, Medicare is divided into two parts: A and B, which cover hospital and medical costs, respectively. A monthly fee is required for Part B. If you need prescription drug coverage, you can also add Part D.
Medicare Advantage, often known as Medicare Part C, is a private-sector-run alternative to Original Medicare. Because the options can be confusing, you’ll almost certainly need to consult an expert to become financially savvy when it comes to Medicare.
It’s worth noting that neither Original Medicare nor Medicare Advantage are likely to cover services received outside of the US.
Minimum Distributions Requirements
Hopefully, you’ve contributed to your retirement plans in the same way that you’ve paid Social Security taxes throughout your working career.
However, you won’t be able to keep your money in those accounts indefinitely. Traditional IRAs and 401(k) plans require you to start taking annual distributions at a particular time to avoid a high 50 percent penalty tax.
Congress has offered a temporary reprieve by extending the deadline for starting RMDs to April 1 of the year following your 72nd birthday. You’re never compelled to receive minimum withdrawals from a Roth IRA because it’s funded with after-tax contributions.
Taxes
When it comes to taxes, if you have a salaried job, your life can be rather simple. In most cases, your employer will deduct the required taxes from your paycheck, and all you’ll have to do is include your W-2 information when filing your taxes.
However, as you get closer to retirement, you may find yourself dealing with a slew of tax papers, ranging from 1099-Rs and K-1s to 1099-INTs and SSA-1099s. Some of them may have distinct tax implications for you, so you’ll need to brush up on them before you retire so you can properly file your taxes.
Expenses
Even if you’re used to budgeting from your working days, your budget is likely to change, possibly dramatically, once you retire.
Many retirees, for example, have paid off their mortgages and are no longer burdened by this hefty housing expense. Even if you have adequate insurance, certain expenses, such as medical fees, are expected to climb.
Other costs will vary depending on your desired lifestyle. Some retirees, for example, will notice a considerable increase in travel and dining expenses, while others will be able to reduce these costs.
The point is that budgets vary a lot from person to person, but they usually change once someone reaches retirement age. Be prepared and aware that your expenses may drastically increase or decrease once you retire.
End-of-Life Preparation
No one wants to talk about the end of their lives, yet it’s a necessary part of financial planning. To begin, make a will and/or a trust to stipulate who should receive your possessions after you pass away.
You might also wish to consult with an estate counsel about how to maximise the value of your asset transfers to your heirs. You should also write down instructions for end-of-life planning in case you become incapacitated for non-financial reasons.
Signing an advance directive, such as a durable power of attorney for healthcare, for example, gives someone else the authority to make medical choices on your behalf.
Allocation of Assets
Whether through a 401(k) plan or your own investment account, you’ve probably come across the concept of asset allocation in your pre-retirement years. However, as you approach retirement, you’ll most likely need to change the asset allocation that served you well during your working years.
Not only will you have fewer years in retirement to recover from a market slump, but you will also have less money to put to your account while markets are down.
As a result, as you get older, many financial consultants will advise you to move your portfolio to more conservative options.
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However, because each person’s financial position is different, you should consider analysing your income, expenses, and financial needs, perhaps with the help of a financial advisor, before making any major adjustments to your portfolio.
