Making the Right Retirement Decisions: Social Security, Health Insurance, and Investments
Retirement is a major life event and the decisions one makes prior to this phase can greatly impact their quality of life afterward.
In this guide, we’re going to shed light on the three prominent decisions you must make to have confidence in the retirement process. These include the determination of when to take social security, decisions relating to health insurance, and finally decisions related to investments and retirement income.
The Timing of Social Security
The first and essential decision that retirees need to make is when to take Social Security. While there’s no set formula for everyone, this choice is highly dependent on your individual situation and it requires careful planning.
“Anyone born between 1943 and 1954 has a full retirement age of 66 even. And then after 1954, the government began to add two months to everyone’s full retirement age.”
This decision essentially falls into three categories: taking Social Security before full retirement age, at full retirement age, or after full retirement age. Let’s explore each scenario.
Taking it before the full retirement age means you will lose 6.6% of your eligible amount for every year you take it early.
On reaching the full retirement age, there is no reduction, meaning if you were eligible for $2,000 at your full retirement age, that’s the exact amount you’ll get.
Choosing to retire after the full retirement age means your account will grow by approx. 8% a year. However, after age 70, it’s not going to grow anymore, thus it’s not recommended to postpone it past that age.
It’s crucial to consider longevity, your cash flow situation, and potential earnings from different sources, while you figure out the right time to take Social Security. Always remember, it’s all about securing a safe and strong cash flow during your retirement.
Handling Your Health Insurance
Healthcare expenses are inevitable in retirement, and hence a strong health insurance plan is a necessity. There are two basic options you might consider.
- Underage Policies: If you’re retiring before 65 and are not yet eligible for Medicare, consider employer plans (if your spouse is still working), Affordable Care Act plans, or co-op plans.
- Medicare: This option comes into play if you’re 65 or older and have contributed to the Medicare tax system for at least 10 years. Regarding costs, Medicare part A is generally premium-free, but part B has a monthly premium, as of 2023 it’s $164.90 a month, although this cost varies with income.
Apart from these, you have other options such as supplemental plans like the G Plan or N Plan, and the Part D plan for prescription drug coverage. However, bear in mind that about half of the Medicare population is now opting for Advantage plans, where you pay as you go depending on the healthcare services you need.
Healthcare is a critical aspect of retirement planning, and it’s crucial that you incorporate these costs into your retirement budget.
Assessing Your Investments and Income
Finally, you also need to consider your investments and income structure for retirement. Can you afford to retire? Do you have a plan? Is your income guaranteed? These are all important questions to ask.
A comprehensive retirement plan consists of three key components: a liquid bucket, an income bucket, and a growth bucket. The liquid bucket serves as an emergency fund, providing you with a financial safety net during unforeseen circumstances. The income bucket ensures a steady stream of guaranteed lifetime income through sources like Social Security, pensions, and annuities. Lastly, the growth bucket contains your investments and funds, allowing your wealth to grow over time.
By structuring your retirement plan according to your individual needs, you can effectively manage your financial requirements during your golden years. This carefully crafted plan will provide you with confidence and peace of mind as you embark on your retirement journey.
Until next time!