Planning for Retirement

Your "to do" planner for a smooth transition

After retirement, you will finally have time to do the things you've dreamed about. But when planning for retirement, you will need to make a number of important decisions. For example, do you want to continue living close to friends and family, or move, perhaps to one of the sunbelt states where you can make new friends and enjoy outdoor leisure activities year-round? Or, will you be looking for the best retirement states without income tax? Here's a countdown calendar of our suggestions about a variety of topics you may not have thought about – to help make your transition into retirement as smooth as possible.

Retirement Countdown Calendar

Countdown — 1 to 2 Years before retirement:

Health Insurance. If you have a flexible spending account for health care, set aside the maximum amount of pre-tax salary dollars in your account. Then, spend it all getting things done before retirement that Medicare won't cover after retirement. The same holds true if you are covered under a more traditional health insurance plan; get needed work done before you retire.

Medicare will NOT cover dental care (cleanings, fillings, extractions, crowns and dentures), eyeglasses and contact lenses, hearing aids and tests, routine foot care, orthopedic shoes, annual physicals after your first one, and up to $3,600 of your prescription drug expenses.

If you plan to move – but you haven't picked a favorite retirement spot yet, you may want to look for low tax states to retire to (lowest income, sales, property and inheritance taxes). The latest information calculated by The Tax Foundation, a Washington, DC based research group, is available online; click on best retirement states.

For more information about the top 150 retirement locations in the U.S., visit Retirement Havens. Their recommendations are based on objective data, both good and bad, about potential retirement places. It's sort of a "Consumer Reports" publication about places to retire.

Consider your options. Will you make a success of your retirement? – or flunk? To help you make a successful transition into retirement, we highly recommend the book, Don't Retire, REWIRE! (2nd edition).

Countdown — 6 months to 1 year before retirement:

Prepare a budget. Most people think their expenses will decline after retirement. For many people, this doesn't happen. The expected decline in work-related expenses is offset by increased spending during retirement for entertainment (including travel) and health care (including premiums for Medicare Part B and Part D (prescription drug coverage) and Medicare Supplement insurance). Track your expenses for a few months before retirement. Then you'll have the information you need for a more realistic budget after retirement. For help, click here for our Free Budget Worksheets.

Set up an emergency fund if you haven't already done so. After retirement, large expenses (such as a medical emergency) can and do arise when we least expect it. How large should your fund be? To be on the safe side, we recommend an amount equal to at least 3 months of your expenses, but preferably 6 months. Keep your fund in liquid assets (such as a checking account, savings account, or money market fund) that you can cash in at any time without a penalty.

If you don't have that much in your emergency fund, apply now for a home equity line of credit instead of a home equity loan. What's the difference? With a home equity loan, you will pay interest on your entire outstanding balance. But, with a line of credit, you will pay NO interest until you actually take some money out, and then only on the amount you withdraw. The secret? – don't use your line of credit except in the case of an absolute emergency.

Smart Money Tip #1: Apply for your line of credit NOW – before retirement when you still have a job; it may be next to impossible to get after you retire.

Smart Money Tip #2: If your emergency fund is nearly exhausted, you can take money out of your Roth IRA with no taxes or penalties if you limit your withdrawal to no more than the sum of your contributions.

Countdown — 3 months before you want Social Security to start:

Apply for Social Security benefits. Do it 3 months before you want your retirement payments to begin. If you're uncertain about when to start your benefits, visit our page Social Security Benefits.

Countdown — 3 months before you turn 65:

Apply for Medicare. You're eligible for Medicare starting on the first day of the month you turn 65. Apply at your local Social Security office or online at Important: The date you apply for Medicare may or may not coincide with the date you apply for Social Security retirement benefits. Sign up for Medicare 3 months before reaching age 65, even if you plan to continue working past age 65. If you don't, your Part B coverage could be delayed and you could have a higher premium.

Countdown — Within 6 months after you apply for Medicare:

Apply for Medicare Supplement (Medigap) Insurance. The best time to buy a supplemental policy is during the first 6 months after you enroll in Medicare Part B. That is the only time insurers are required to accept you, regardless of your preexisting health conditions. For more information, click on Medicare Supplemental Insurance for Seniors.

What's next?

Click on Planning for Retirement - Part 2 — After you retire!