Retiring? (Or plan to soon?) 6 things to do before you leave your job
So the paperwork is officially on file with human resources: You’re retiring.
You’re ready to sleep in on Monday mornings, and take the dog for long walks in the middle of the day. Maybe enroll in a woodworking class. You can picture it, right? (Good for you!)
First get your financial house in order. Whether you’re retiring from the workforce for good, or retiring and looking for employment, here’s a checklist of things to do before you leave your job.
Your checklist at a glance
- Determine employee benefits termination date.
- Browse health insurance options.
- Handle health savings account (HSA) funds.
- Check flexible spending account (FSA) balance.
- Elect pension (if applicable).
- Create income plan.
1. Find out if any employee benefits extend into retirement.
Ask HR when your benefits terminate—the day you leave? End of the month? Then verify if you’ll still receive benefits such as retiree medical, dental, vision, or life insurance. “Those benefits aren’t as common as they used to be in retirement,” says Heather Winston, assistant director of advice and planning at Principal®.
A couple more benefit-related tips to keep in mind before you retire:
- Dental and vision insurance: Need new glasses or dental surgery you’ve been putting off? 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: If you bought or were provided extra life insurance coverage (called a voluntary policy) through your employer and want to keep it, start the paperwork to convert it from a group to an individual policy, if that’s offered. You’ll pay the premium directly to the insurance company, rather than having it payroll deducted.
- Health insurance and retirement: You may need to make decisions about health insurance and your retirement plan. (More on those topics below.)
Tip: Browse your company intranet for employee benefits information. Still have questions? Call human resources (HR) or your benefits contact.
2. Look into your health insurance options.
This should be one of your highest priorities. An unexpected health issue can have significant financial implications if you’re uninsured.
If you’re under age 65:
- You may have retiree medical coverage through your employer if you’re retiring and under age 65, or you may be able to join the insurance policy of a spouse/partner. (Usually you need to sign up within 30 days of your termination date from your job, so don’t delay.)
- Another option is COBRA, which stands for Consolidated Omnibus Budget Reconciliation Act. It allows you and your family 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 turn 65 during those 18 months, you must apply for Medicare.
- An alternative is a Health Insurance Marketplace plan. Available plans vary from state-to-state, and depending on your household income, could cost less than COBRA. Visit healthcare.gov to learn more.
- If you’re a veteran, you may qualify for coverage through the Veterans Benefits Administration.
If you have dental and/or vision insurance in your old job, that’s included as part of COBRA, too.
If you’re 65 or older:
You’re eligible for Medicare coverage if you’re 65 or older. When you sign up through Social Security to elect Medicare, you’ll be offered 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.)
3. Decide what to do with your health savings account (HSA) funds.
If you’re retiring, you can generally leave any HSA funds you may have with your employer. Then tap that money as needed 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.
4. Check your flexible spending account (FSA) balance.
Brush up on the rules for your company’s FSA benefit and deadlines. Submit claims for health care expenses (or dependent care) by your termination date so you’ll get reimbursed. If you have a balance, what you don’t use, you lose, so shop for FSA-eligible items. (Your employer has a list.)
5. Elect your pension, if that’s a benefit available to you.
If your current or previous employers offered a traditional pension plan (also called defined benefit plan), you may have decisions to make about how it will be paid. Ask your HR contact if you have this benefit.
You may also want to consult a financial professional to help you navigate the decision-making process. You may have options to choose from, and what makes sense for you depends on your personal circumstances (such as your health, if you have a spouse/partner, or what kind of income you need).
More retirement planning resources
6. Create your retirement income plan.
Know what’s in your last paycheck so you can revise your budget.
Your last check could include back pay, vacation/sick days, commissions, or a bonus. Then you can budget for any lag time between your last paycheck and when your retirement income (Social Security, pensions) kicks in.
“If it looks like you might have a short gap between when you retire and when you’ll have retirement income, you may want to increase your savings in the weeks and months before you leave your job,” Winston says. “If you still run short, you could also tap into your emergency fund rather than using credit cards to finance day-to-day expenses.”
Figure out your retirement income plan.
Guaranteed income sources
- Social Security, if you’re taking it now
- Pensions (traditional defined benefit plan)
Assets to fund retirement
- 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)
Use our retirement budget worksheet (PDF).
Decide what to do with your retirement accounts.
“Since your 401(k) may be a large share of your retirement savings, carefully consider whether to roll your savings into an IRA or leave it in your employer’s plan,” Winston says. “Weigh the pros and cons of your options to decide what’s best for you, comparing fees, tax implications, and when you’ll need to withdraw money.”
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.
Generally, you’re choosing between these two options:
1. Roll your savings from your 401(k) into an IRA.
Combining retirement accounts gives you flexibility in decision-making to help ensure your assets support your goals.
- Consolidating your retirement accounts can simplify your life by having it all in one place.
- While you can’t contribute to a 401(k) after you retire, you can continue adding funds to an IRA.
- IRAs generally have more investment options to choose from, if that’s important to you.
Learn how to start a rollover IRA.
2. Keep your money where it is.
You may want to leave it in your 401(k) plan if you’ll need to take withdrawals in your late 50s.
- 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 “Age 55 rule.”
- Look at your company’s rules for payout. (Example: If it limits withdrawals to quarterly or annually, will that work for you?)
- If you have a Principal retirement account or insurance from your employer, log in to principal.com to learn about rollover options, access personalized planning, sign up for our newsletter and more. First time logging in? Create an account. For questions about your insurance with Principal, visit our help page.
- Interested in an IRA? To learn more, read how to start a rollover IRA or see if an IRA with Principal may be a good fit for you.
- 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.
Principal® does not make available products related to health savings accounts.
You should consider the differences in investment options and risks, fees and expenses, tax implications, services and penalty-free withdrawals for your various options. There may be other factors to consider due to your specific needs and situation. You may wish to consult your tax advisor or legal counsel.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
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