If you've decided that 2016 is the right time for you to make the transition to retirement, you need to be financially well prepared. For many who are 50 or older, their greatest fear is outliving their savings and investments.
Even if your nest egg isn't as big as you'd like, knowing what to expect in retirement and planning ahead can be your greatest assets. Before you retire from your job or career, take these three steps over the next few months:
1. Make extra contributions to retirement accounts. If you're age 50 or older, you can significantly increase your retirement savings with "catch-up" contributions to various accounts. Workers 50 and up can put an extra $6,000, or up to $24,000, into a 401(k), 403(b) or 457 plan in 2016.
If your employer offers a high-deductible health-care plan, consider opening a Health Savings Account to put away money for future health-care costs. If you're 55 or older, you can contribute an extra $1,000 to these accounts for up to $4,350 for an individual and $7,750 for a family in 2016.
If you don't need the money for current health-care needs, you can invest some or all of it in mutual funds and other assets, just like a 401(k). Your HSA can be your retirement account for health-care expenses. Most workers who are 50 or older have saved or are currently saving outside of work as well. (To download a Transamerica report on pre-retiree behavior, click here.) If you're 50 or older, stuff an extra $1,000 — or up to $6,500 — in a traditional or Roth individual retirement account in 2016.
Have your own business? You can tuck away big bucks and get a big tax break, too. Self-employed workers can contribute up to $53,000 in a SEP-IRA or Solo 401(k) in 2016.
2. Be sure you'll have health insurance. Future health-care costs are difficult to predict. But you can plan ahead to make sure you have adequate health insurance coverage when you retire.
If you have a group health insurance plan through your employer, you'll need to set up new health insurance coverage before leaving the company. If you're younger than 65, you can buy insurance through your state health insurance marketplace.
If you are 65 or older, sign up for Medicare. Enroll in Medicare during the months around your 65th birthday to avoid permanently paying higher Medicare Part B premiums.
3. Decide when to claim your Social Security benefits. You won't be able to get your full Social Security benefits until you turn 66 if you retire in 2016. If you decided to claim Social Security early — between ages 62 and 65 — your payments will be reduced.
You could significantly increase your payments if you wait to claim benefits until as late as age 70. Get an estimate of what your payment might be at various ages on the Social Security Administration's website.
Since claiming strategies can be complex, consult a financial advisor who can help you determine the best time to claim your benefits and also help ensure you are financially well prepared to retire.