Retiring from work? Congrats! Whatever your next steps, from part-time work to spending more time with loved ones, this finance-focused retiring checklist can help make the transition as smooth as possible.
1. Create your retirement budget and retirement income plan.
As you near your retirement date, consider your budget in the short and long term. In the short term, you’ll have a last paycheck that may include back pay, vacation/sick days, commissions, or a bonus.
You may also have lag between your last paycheck and when your retirement income kicks in. “If you think you’ll have that gap, consider increasing your savings in the weeks and months before you leave your job,” says Heather Winston, assistant director of advice and planning at Principal®. “If you still run short, you could also tap into your emergency fund rather than using credit cards to finance day-to-day expenses.”
Not sure how to create a post-work plan for income and expenses? Use our retirement budget worksheet (PDF).
After you’ve retired, your retirement income plan may include two sources:
Guaranteed income sources
- Social Security, if you’re taking it now
- Pensions (traditional defined benefit plan)
- Annuities
Assets to fund retirement (more on the first two below)
- Individual retirement accounts (IRAs) and retirement plans (401(k), 403(b), ESOP)
- Personal savings (CDs, bank and money market accounts)
- Investments (stocks, bonds, mutual funds, real estate)
- Wages in retirement (example: part-time job)
2. Examine benefit end dates.
Some benefits may stop the day you’re done with work, but others may extend by a set number of days. However, “those benefits aren’t as common as they used to be,” says Winston.
This list can help in the retiring transition:
- Upcoming checkups: If you have dental or vision insurance now but won’t when you retire, schedule appointments before your last day while those expenses may still be covered.
- Life insurance extension: To convert a voluntary life insurance policy (one bought or provided by your employer), contact your benefits administrator to get the paperwork started. The difference: You’ll pay the premium directly to the insurance company, rather than having it payroll deducted.
- Health insurance and retirement: More on those topics below.
Tip: Enter your employee benefits or human resources department into the contacts on your phone in case you have questions once you’re retired.
3. Review health insurance options in retirement.
Make this a top priority as you’re planning to retire so you don’t spend any time uninsured. Your options depend on your age.
Options if you’re under age 65:
- Retiree medical coverage through your employer.
- The insurance policy of a spouse/partner (usually, you’ll have to sign up within 30 days of your termination date from your job).
- Coverage through COBRA to continue health insurance for up to 18 months after losing your coverage through work. COBRA can be pricey because you pay the full premium (rather than your employer covering part of the cost). If you have dental and/or vision insurance through your old job, that’s included as part of COBRA, too. However, if you turn 65 during those 18 months, you must apply for Medicare.
- A Health Insurance Marketplace plan. Availability varies from state-to-state and depends on your household income. Visit healthcare.gov to learn more.
Options if you’re a retiring veteran:
- You may qualify for coverage through the Veterans Benefits Administration.
Options if you’re 65 or older:
- Medicare coverage. When you sign up through Social Security to elect Medicare, you’ll have options like a prescription drug plan and Medicare supplemental coverage. (You don’t have to take Social Security to get full Medicare benefits, but you do have to contact Social Security to sign up.)
Tip: To learn more about health care in retirement, read “Creating a plan to sign up for Medicare” and “Budgeting for health care in retirement.”
4. Check your health savings account (HSA) funds and flexible spending account (FSA) balance.
Your HSA
No matter your employment status, you can leave HSA funds in your account and use that money for future eligible health care expenses. Keep in mind that once you sign up for Medicare, you can no longer contribute to an HSA.
Tip: If you use HSA funds for unapproved expenses, there are tax implications.
Your FSA
If you have a balance, what you don’t use, you lose, so shop for FSA-eligible items. Submit claims for health care expenses (or dependent care) by your termination date so you’ll get reimbursed. (Your employer has a list and its own benefit rules and deadlines.)
5. Elect your pension, if available.
If your current or previous employers offered a traditional pension (also called defined benefit plan), you may have to decide how it will be paid. Ask your HR contact if you have this benefit.
6. Decide what to do with your retirement accounts.
“Weigh the pros and cons of your options to decide what’s best for you. Compare fees, tax implications, and think about when you’ll need to withdraw money,” Winston says. Generally, you’re choosing between these two options:
Roll your savings from your 401(k) into an IRA.
This is called consolidation, and it offers the advantage of simplification—all accounts in one place. While you can’t contribute to a 401(k) after you retire, if you have some earned income, you can continue adding funds to an IRA, which may also have more investment options to choose from. Learn how to start a rollover IRA.
Keep your money where it is.
If you retire or lose your job when you’re age 55 or older and maintain your 401(k) with your former company, you can take penalty-free withdrawals between ages 55 and 59 1/2. (This only applies to the 401(k) from the employer you just left.) This is known as the IRS Rule of 55. Your company will have rules for payouts, such as limiting withdrawals to quarterly or annually.
Withdrawing all the money is also an option, but likely not your best one. Depending on your age and the type of the retirement plan you have, if you take out all funds, you could have immediate tax consequences and penalties. And, the savings lose the opportunity for growth, too.
What’s next?
- If you have a Principal retirement account from your employer, log in to principal.com to learn about rollover options. First time logging in? Create an account.
- Ask for help. A financial professional can talk you through your options when you retire. Don’t have one? Check with your HR contact to see if your company’s retirement savings plan offers this service. Or, we’ll help you find one.