It’s a good idea to run a retirement cash flow projection to be sure that the spouse retiring can realistically retire without putting a strain on the household finances and worse running out of money later. If you find out you cannot safely retire, then you should delay your retirement date.
If the spouse is retiring before they are eligible for Medicare, they will need to consider the possible extra cost of health insurance. It’s possible he or she may get coverage from the still working spouse, or if their income is below certain thresholds, they may be able to consider subsidized Obamacare. Otherwise the full cost of the health insurance should be considered.
The retiring spouse should consider rolling over any retirement plan balances into an IRA. The right IRA usually offers more investment choices and makes it much easier for the kids to establish Inherited IRAs. Also, make sure you have updated beneficiaries on all of your retirement accounts.
If the retiring spouse will get a pension, check to make sure that they factor in any reduction in the amount of pension income if retiring before a certain age, like 65 for example. Also, don't file for social security until you do a social security analysis. This can tell you the best age to file to coordinate and maximize benefits for both spouses.
If you drop into a lower tax bracket after one spouse retires, consider converting traditional IRA money to a Roth IRA. You’ll get taxed on the amount of the conversion, but you'll pay less taxes if you are in a lower tax bracket. And often when you reach 72 and start taking Required Minimum Distributions, your tax bracket will go up 1 or 2 brackets. Now you will have money in Roth IRAs that you can take out with zero tax, which will result in completely avoiding the higher tax rates.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.