By Marcia Mantell, RMA®
Planning your retirement might have been years in the making. Or, it could have sprung up on you quite suddenly. Regardless of how you got to the top of the mountain, you are at the apex of a climb that took you 40 or more years. And you may be thinking, “Now what?” when it comes to your personal finances.
Compared to the rules and regulations that govern nearly every financial move of the transition to retirement, there really isn’t much structure to the retirement years. Yet, hidden away are many tasks you’ll need to complete, update, and revise every year.
Let’s pull together a framework that addresses important financial obligations and family opportunities important throughout three decades of retirement. Call it your “living-in-retirement” calendar.
We marked our transition into retirement by reaching certain age milestones. Reaching certain birthdays in our 50s, 60s, and 70s triggered key decisions or specific actions.
There isn’t a single person in America who doesn’t know that they can claim Social Security at 62. It comes with permanently reduced payments, but they know the age that opens the door. Most folks know that Medicare starts at 65. If they don’t enroll on time, they know they will be hit with a permanent penalty.
And, there is a lot of concern about how to avoid the 50% IRS penalty after age 72 if required minimum distributions (RMDs) aren’t taken on time. (Until 2020, the age was 70 ½.)
But then what? After claiming Social Security, enrolling in Medicare, and starting required minimum distributions, does one float financially adrift for the next 30 years? Well, not exactly. There are important obligations around the financial and tax side of retirement. The difference is no one is there is remind you to do these tasks. And, mistakes are costly.
Once you are fully engaged in and living in retirement, it’s up to you to schedule these dates and times into your calendar. And, managing them falls squarely on your shoulders.
Build your Post-Retirement Action Plan with Annual To-do’s
Tax rules are a good place to start building your annual living-in-retirement calendar. April 15th is still “tax day,” so you can mark that down on the calendar. In addition, you’ll be in charge of other lesser well-known retirement tax tasks, including:
Calculating your RMD: You must take your first RMD at age 72. But that is just the first of many required distributions. RMDs are annual calculations and distributions every year you live in retirement. The amount you must distribute will change every year based on your December 31st account balance and your age.
Fortunately, most large financial companies offer a free RMD service if you sign up for it. They do the math and make sure to move the money from tax-deferred to taxable accounts. You can choose distribution payments quarterly, monthly, or annually. That will keep you in the clear from that nasty 50% IRS late RMD penalty. But you are still on the hook for managing your accounts and confirming distributions.
Calculating your Social Security Taxable Amount: Many retirees learn that half or more of their Social Security benefits are taxable. How much is deemed ordinary income depends on your overall financial situation each year. And you can count on your tax liability changing every year. Therefore, it’s up to every retiree to calculate their Social Security taxable amount and report it on IRS Form 1040 every year. You’ll find the worksheet in IRS Publication 915.
Add in Quarterly Payment Dates to your Calendar
It is insufficient to build a living-in-retirement calendar with only once-a-year financial events. In particular, two items tend to sneak up on unsuspecting retirees:
Determining estimated quarterly taxes: Leaving your paycheck behind means you now take the reins when it comes to timely income tax payments. Paying quarterly estimated taxes may well be required. It’s going to be up to you (or your tax accountant) to determine estimated payments based on anything considered “income.” FYI, this includes Social Security.
You become responsible for sending payments to the IRS and your State’s treasury department on time every quarter. And the quarters aren’t what you think. The IRS has “quirky quarter” deadlines: April 15, June 15, September 15, and January 15.
Paying Property Taxes: It’s a major financial win when you make that last mortgage payment. But, unknown to many, the mortgage company will no longer pay your quarterly or semi-annual property taxes. It will be up to you to remember to timely pay your property taxes every period. If you have a 30-year retirement, and your payments are due quarterly, that’s 120 property tax payments to make on time.
Take a Fresh Look at your Medicare Prescription Drug Plan
While enrolling in Medicare Part A (hospitalization) and Part B (doctors) is generally a once in a lifetime event, it’s not the same for Part D. Part D helps you pay for your prescription drugs. Every fall, from October 15th through December 7th, you’ll want to review your Part D coverage. If there has been a change—the price of your drug(s) increased, premiums went up, your plan no longer covers one of more of your drugs, or you are taking new drugs—you can change your drug plan and the insurance company for one with better pricing.
Since the drugs you take are the same regardless of the insurance company providing your insurance, you are shopping for the best overall price combination of monthly premium plus drug cost. The insurance companies continually tinker with their pricing every year, but there is no reason to pay more than you have to.
It’s up to you to review your plan each year and make a new selection as needed. Mark October 15th on your calendar.
More Action Items for Managing Financial Decisions Throughout Retirement
When you think about your living-in-retirement calendar, not every financial action is tax-based. Look out to your future years and mark down when to revisit your key retirement planning documents and lifestyle decisions.
One suggestion is to use the “five-oh” plan: 5 – 0. Use your birthdays that end in a 5 or a zero as markers to revisit your big plans and make any updates or changes. Here are a few examples:
Revisit your estate plan every 5 years. Make sure you still agree with the executor you chose five years ago. Reconsider your health care instructions and directives in light of new or updated laws, and your health condition. This is especially important if you’ve relocated to a different state.
Review your living arrangement and housing options. Might it be time to move closer to children? Or, downsize and simplify? Can you safely manage the stairs and the outdated bathroom? While this can be an emotional change, it’s important to think about your options while you can still make the decisions and handle the physical demands of a move.
Rethink travel. As we age, it gets harder to travel and spend time away from home. It might be helpful to plan for big trips earlier in retirement. Perhaps you want to plan for international travel between 70 and 80, then switch to U.S. travel between 80 and 90.
A Look at a Living-in-Retirement Calendar
Pulling all these hidden tasks together in one place can help you build your framework for better managing your retirement financials. Here’s what a living-in-retirement calendar might look like. You’ll want to schedule your specific dates on your own calendar. (This example assumes quarterly RMD payments and semi-annual property taxes.)
January: Prior year Q4 estimated tax payment due by January 15; calculate current year RMD and make any changes to payment schedule.
February: Take RMD payment 1 of 4.
March: Pay Property Tax payment 1 of 2.
April: Tax Day on or about April 15; pay Q1 estimated tax payment by April 15.
May: Take RMD payment 2 of 4.
June: Pay Q2 estimated tax payment by June 15.
July: If this is a birthday year ending in 5 or 0, take a new look at some of your big plans; discuss realities of your living arrangement and travel plans.
August: Take RMD payment 3 of 4.
September: Pay Q3 estimated tax payment by September 15; pay property tax payment 2 of 2.
October: Review Medicare Part D prescriptions and insurance plans. If there is a less expensive plan, make a switch.
November: Take RMD payment 4 of 4.
December: Final chance to meet RMD for the year.
So, the “What’s next?” after you’ve successfully made your way into retirement is that you own your retirement financial obligations. Every year. For 30 years. Time to find a pencil…
About the author: By Marcia Mantell, RMA®, NSSA®
Marcia Mantell is the founder and president of Mantell Retirement Consulting, Inc., a retirement business consultancy. She developments innovative programs, marketing materials, and educational workshops in the financial services industry, for advisors and their clients. She is author of What’s the Deal with Retirement Planning for Women?, What’s the Deal with Social Security for Women? and blogs at BoomerRetirementBriefs.com.