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Retiring in 2022? 4 Steps to Take Now

Retiring in 2022? 4 Steps to Take Now

17 Jan 2022

Retiring with a sizable nest egg in 2022 is still within the realm of possibility in spite of the sluggish stock market in the final financial quarter of ’21.  Even if the economic woes continue into the new year, our investment advisors in Canton, OH can offer retirement planning guidance to give you peace of mind that you will have the financial means necessary to retire without worrying about the prospect of returning to work.  

Seize the opportunity to take advantage of our full-cycle investing wealth management strategies and you’ll transition to rewarding golden years and never look back.  Our full-cycle investing approach accounts for inflation, stagflation, reflation, bull markets, bear markets, and the middle ground in between these extremes.  

Below, we provide a quick look at five important steps you can take now to seamlessly segue to retirement in ’22. 

Set up the RMDs

If you are 72 years of age, it is time to set up your RMDs.  RMD is an acronym short for required minimum distribution.  RMDs are taken out of accounts on a yearly basis after reaching 72-years-old.  Examples of accounts from which RMDs are withdrawn include 401(k)s, Roth 401(k) accounts, 457(B) plans, and 403(b) plans.  Furthermore, SEP and SIMPLE plans set up for small businesses will also have RMDs withdrawn when the account holder reaches 72 years of age.  

 

Retiring in 2022? Contact McGervey Wealth Management for a retirement readiness check-up! 

 

The bottom line is your retirement accounts funded with pre-tax money must be set up for RMD distributions when you are at the age of 72.  Those born after June 30 of 1949 are not required to take RMDs until reaching the age of 72.  Though an individual of this age is empowered to wait until April 1 of the year after reaching 72 years of age to take the first RMD, waiting is unnecessary.  

Do not wait until this benchmark unless your goal is to hold off from withdrawing your money through RMDs for as long as possible.  Every pre-retiree should be aware that waiting until April 1 of the year when this age benchmark is reached mandates the taking of two separate RMDs in the year ahead.  

Fail to take your RMD and you will be subjected to a penalty of 50% of the amount you were supposed to have withdrawn from the account.  As an example, if your RMD was $5,000 and you failed to take it, a punitive excise tax of $2,500 would be applied.  Money in a workplace retirement plan such as a 401(k) might not mandate taking RMDs until after retirement.  

However, those who own in excess of 5% of the employer sponsoring the retirement plan will be required to take the RMDs upon retirement.  RMDs are also applicable to retirement plans not associated with one’s employer at the age of 72 on up.  If you have any questions or concerns about RMDs, a trusted financial advisor can help.

Catch-Up Contributions are a Boon 

Take full advantage of catch-up contributions to your retirement plans and you’ll find it is that much easier to transition to retirement in the year ahead.  Catch-up contributions are the contributions you can make after reaching age 50.  Seize the opportunity to max out your retirement plans including your IRA and 401(k) in the year leading up to retirement.  

In ’21, the contribution limit for a 401(k) account is $19,500.  However, once you factor in catch-up contributions, the limit jumps all the way up to $26,000.  Contribute up to this cap and you’ll sleep soundly knowing you have done your part to financially prepare for a comfortable and enjoyable retirement in ’22 and beyond.

Determine a Reasonable Withdrawal Rate

Meet with a fiduciary CERTIFIED FINANCIAL PLANNER™ Professional at McGervey Wealth Management for comprehensive financial planning and we will help you determine a withdrawal rate that is best for your retirement budget and lifestyle.  

If you are like most people in the greater Canton, OH area, you will not live on your Social Security income alone during retirement.  Rather, you will make withdrawals from the money you have saved and invested in your retirement accounts throughout your golden years.  

Now is the opportune time to meet with our financial advisors to start planning your withdrawal rate prior to retiring in the year ahead.  Our wealth management strategies will be tailored to your unique financial picture, helping you determine a safe and reasonable withdrawal rate in your initial year of retirement and thereafter.  The aim of crunching the numbers of your retirement spending a full year ahead of time is to guarantee the withdrawal rate you select does not cause you to run out of money in what should be the most enjoyable years of your life.

Sweat the Small Stuff of Health Insurance

Your employer might not cover your health insurance after you retire as you will likely be 65 years of age or older.  If you will lose health insurance through your employer when retiring in the year ahead, shift your focus to Medicare or Medicare Advantage.  If you are younger than 65-years-old, consider obtaining health insurance through the Affordable Care Act or COBRA.  

If you plan on retiring before reaching age 65, be sure to sign up for Medicare three months prior to hitting this important age benchmark.  The majority of people enroll in Medicare when they reach age 65.  However, you can sign up for Medicare three months prior to the month at which you reach age 65.  Those who will still be employed when approaching age 65 and have health insurance through their job or through a spouse’s job are encouraged to ask the benefits department and insurance providers as to the best approach to handling Medicare.  

Every pre-retiree should be aware that the rules of Medicare are complex.  Even if you are enrolled in group healthcare coverage, you might still be required to sign up for Medicare.  If you were to miss your initial enrollment deadline, a slew of problems would result including but not limited to a financial penalty for failing to enroll in a timely manner and a gap in coverage that leaves you uninsured after retirement.  

Pre-retirees looking to depart the workforce in 2022 should be aware that if their employer provides retiree healthcare, it will still be necessary to enroll in Medicare.  Such healthcare programs for retirees usually do not provide much beyond complementary benefits in addition to the coverage provided through Medicare.  

As an example, prescription drug coverage might be available through the retiree program so be sure to compare those benefits with other options including Medicare Advantage and Medigap to determine which is best for your health challenges and financial picture.

At McGervey Wealth Management, our fee-only fiduciaries are ready to assist you with all of your retirement planning needs. Instead of a cookie-cutter, one size fits all approach, we get to know you on a personal level and will design a retirement plan custom to your needs. To learn more about our retirement planning and investment management techniques contact us today.

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More About the Author: Matthew McGervey, CFP®, MBA

As a CERTIFIED FINANCIAL PLANNER™ professional, Matthew has a broad knowledge of personal financial planning strategies and solutions.