Countdown to Retirement: The Last Six Months

Fred Karp

By Frederick Karp | April 4, 2017

By the time you read this, I will have retired. I officially retired from Penn Mutual on March 31, and I was asked if I would share my retirement planning journey.

Instead of talking strategies for 401(k) plans and annuities, I thought it might be more useful to share my experiences over the last six months, putting my affairs in order as I prepared to retire. There were a lot of decisions to make, and I often found it very challenging. I have known for a while that I was retiring at the end of March, so I set out last summer to become an expert in my retirement choices by the end of December last year. Frankly, I started out knowing nothing.

There is a lot of misinformation about retiring. Well-intentioned people will try to give you generalized advice, none of which is likely to apply to your own particular situation. Everybody’s circumstances are different; there is no one-size-fits-all plan. I am a lawyer, not a financial adviser, and while I have become an expert in my own retirement choices, I would never suggest that you take anything I say as the final word on how things might work for you.

As an example of how complicated this can be and how every situation is different, everyone tells you that when you’re 65, either three months before or three months after, you should sign up for Social Security and Medicare. You really don’t have to and may not want to, particularly if you’re continuing to work. If you have a full time job that has credible health insurance, your employer plan will be the primary anyway and Medicare Part A hospital coverage (which is automatic when you apply) becomes secondary to your employer plan. Some may want this extra protection, but if you also have a Health Savings Account (HSA), you can’t contribute to an HSA and be on Medicare at the same time, in the same year. However, deferring enrollment may allow you to continue to contribute to your HSA. While this is obviously something that doesn’t apply to everyone, it serves as an example of the sort of complication that can arise as you go through the process. You shouldn’t march down to your Social Security office and apply for benefits without doing some advanced planning.

My first challenge in retiring was getting the right information about what I needed to do. There were two resources that I found very useful in planning for my transition. The first was through my employer. Penn Mutual contracts with an organization called Health Advocate Solutions, and they had a team of people ready to help me understand the process of signing up for Social Security and Medicare. While Health Advocate couldn’t do the work for me, they pointed me in the right direction. For yourself, see if your own employer offers similar resources.

I also found my local Social Security office to be extremely helpful and I had much more success visiting the office in person, rather than over the phone. I had so many things to consider including deferring or taking my social security benefit, taxation and tax withholding of benefit payments, the cost of Medicare and all the different Medigap and prescription plans. Social Security and Medicare can be daunting, but since the Social Security office is less than two miles from where I live, I’ve become and will continue to be somewhat of a regular.

The one thing I did know was that I needed to stop contributing to my HSA, so I finished contributing in December of 2015. I’m glad I did, because I chose to get Social Security retroactively to July of 2016 and take a lump sum. This is why it’s important to talk to your Social Security office. I didn’t even know that lump sum payment options were still possible, but the Social Security personnel laid it out. It turns out that I had four different options to consider. Of course, that’s just specific to my circumstances. Your options are likely to be different, so don’t be afraid to ask.

One surprise was that my out-of-pocket costs for Medicare Part B and D were increased significantly based on my adjusted gross income (AGI) in 2015 (and in 2018 for income in 2016). Penn Mutual was able to provide me a letter to the effect that I was retiring as of March 31, and I submitted my estimate of reduced income to Social Security which enabled them to reconsider the calculation of my IRMAA, the Income-Related Monthly Adjustment Amount (IRMAA) based on my estimated AGI for 2017 and 2018. This is another example of how it pays to know what your rights are. Unless you know you can do this, you may pay a lot more for your Medicare part B and D (or C) plans. If I hadn’t asked for a recalculation, the Social Security office wouldn’t have known about the reduction in my income until 2019.

It’s mind-blowing how much effort and work goes into retiring, but I’m looking forward to it. One thing is clear to me: This is not a one-and-done decision. I’m going to have to keep making adjustments, optimizing my choices according to changing circumstances. If nothing else, I will have to make a decision about my Medicare Part B and D plans every year.

For those of you who are nearing retirement, I would give you this general advice:

1. Be honest with yourself about what you really want to do when you retire. Do you want to continue working? Do you want to return to work after taking some time off? Do you want to travel? Work part-time? Volunteer? Get active politically? Almost everyone I talk to says they want to give back in some way. I think it’s good to have a plan in mind, but be open to change if you are led in a different direction.

2. Become an expert in your own situation. You can certainly talk to people about strategies for Social Security and Medicare, but understand that people’s comments are often based on their own particular situation, so their advice may be wrong for your particular situation. I didn’t put a lot of stock into what other people told me. I did find it useful to talk to Health Advocate Solutions, as they gave me guidance on what to expect at each step of the process.

3. Take the time and effort to call Social Security yourself. I found they were very helpful. Ask them about your particular circumstances and what options you might have. The things they tell you might be very different from what you’ve been reading about on line or in the newspaper.

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