First Year of Retirement: 7 Money Moves You Absolutely Must Make

If you’re near retirement or fresh in it, it’s critical to understand how to manage your financial life, and how it differs from when you were making a salary. To do this, you should make these seven money moves in your first year of retirement — per the suggestions of experts.  

Start Tracking Your Expenses 

Hopefully, you’ve already made a strict budget and have been tracking expenses leading up to your retirement. Now is the time to really pay attention. 

“Take the first few months of your retirement to diligently track your expenses, so you understand where your money is going, and how much you need a month,” said Mark Henry, founder and CEO of Alloy Wealth Management. “It will likely be much different than your pre-retirement expenses, especially if you move. There may be places you can cut back and others where you want to splurge a little more.” 

Secure Healthcare Coverage 

You may have already sorted out your healthcare coverage, but if not, you need to figure that out sooner than later. 

“If you are not eligible for Medicare yet and your employer does not offer continued access to healthcare coverage, you will need to look into alternative options,” said Larry Roby, president and CEO of SFA Wealth Management. “For example, you may use the Health Insurance Marketplace to find a new insurance plan or you might qualify for Medicaid coverage. No matter which route you go, it’s important to get your healthcare coverage in order. Otherwise, you may be one emergency away from depleting your retirement income savings.”  

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Make Sure Your Retirement Money Is Allocated Properly

Market swings can be extra daunting when you’re in retirement. Make sure your retirement investments are properly allocated. 

“We recommend making sure [retirees] have an appropriate allocation for their time frame or risk level,” said Kendall Meade, CFP at SoFi. “In retirement, you may prefer to hold a greater portion of less risky assets, like bonds, cash and cash equivalents. If the market drops, they are less likely to drop with it as they are less volatile. This doesn’t mean that you should not hold any stocks though. Keep in mind, your savings may need to last you another 20-30 years in retirement, and while stocks are more volatile, they also tend to have the highest return over time. By being too conservative, you may run the risk of running out of money sooner.”

Plan Your Social Security Strategy

If you haven’t already figured it out, it’s time to nail down your Social Security strategy — and when you’ll start collecting benefits. 

“When determining the best age to start taking Social Security you want to consider your own longevity,” Meade said. “For those who may have medical conditions or a family history that leads them to believe they have a shorter life expectancy, it can make sense to take Social Security sooner. For those who expect to live longer, they can get a larger benefit by delaying. You also want to keep in mind that if you are still working it may be worth it to delay Social Security so that your benefit is not reduced. If you are trying to make this decision consider reaching out to a financial planner who can help you analyze what is best for your specific situation and even show you the breakeven age of how long you need to live for delaying to be the best option.”

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Understand Your Tax Responsibilities  

It’s important to understand how your taxes will be different in retirement than they were in your working years. 

“If you have been steadily saving in a 401k or other tax-deferred retirement account, you might think you have more money than you will actually end up with upon withdrawal, Henry said. “The tax rate you pay on your traditional IRA and 401(k) withdrawals would be your ordinary income tax rate. If you have been saving in a Roth IRA, where your contributions were taxed up front, you won’t have to worry about taxes on that money in retirement, as long as you have held the account for at least five years.” 

It’s also important to understand taxes when you start collecting Social Security benefits.

“Social Security is adjusted annually with inflation, so it could bump you into a higher tax bracket next year even after you have been collecting for a while,” Henry said. “It’s a good idea to speak with a tax professional who can help you avoid any surprise tax bills.”

Continue Your Financial Education 

Just because your earning years are over, doesn’t mean your learning years are too. 

“Continue to educate yourself on financial management in retirement,” said Khwan Hathai, CFP, CFT, a financial therapist and the founder of Epiphany Financial Therapy. “The financial world is constantly evolving, and staying informed will empower you to make the best decisions for your financial health.”

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Consult With a Financial Advisor 

No one knows your retirement situation better than you — but, often, no one can explain it to you in an actionable and clear way better than a financial advisor. 

“Even if you have been saving for years in a retirement account, practicing long-term investing and planning your dream retirement, a financial advisor can help you understand how to best utilize your money,” Henry said. “They can help you make important financial decisions like when to start collecting Social Security or whether to convert your money to a pension. A dream retirement looks different for everyone, and a financial advisor will help you understand how to balance having fun and thriving financially for the rest of your life.” 

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