If you’re on the verge of retirement, you might be tempted to start making some big changes right now.
This could mean downsizing your home and moving to a new city or state. Or it could mean selling off certain investments or buying that expensive boat you’ve always wanted.
But while you might feel like you’re ready to make some major decisions like these, it might be better to wait until you’re officially retired.
“With any major life change, it’s important to give yourself time to adjust physically, mentally, and emotionally. Allow yourself some time to adapt your perspective to your new daily, weekly, or monthly rhythms. Avoid making any irrevocable decisions right away,” said Kristen Beckstead, CFP, ChFC, Vice President and Financial Planner at First Horizon Advisors.
As you approach this next stage in your life, here are the top things you should wait to do until your retirement is official, according to experts.
#1 Moving Out of State
A lot of people plan to move once they retire, but if that’s one of your goals, you may want to wait until you’ve officially left the workforce before relocating for tax purposes.
“If part of your retirement plan involves relocating to another state, consider the state income tax implications of the move. Some states impose taxes on all income earned throughout the year if you have resided in that state for a certain portion of the year,” said Beckstead.
“If you are experiencing a peak earning year during your final year of employment and intend to retire in a state with higher income tax during that same year, ensure that you consider how your earned income will be taxed by the new state,” added Beckstead. “If the tax burden would be greater by moving and retiring in the same year, you might want to postpone the move until the next tax year begins.”
Paul Tyler, chief marketing officer at Nassau Financial Group, added, “You should not only consider your tax bracket before and after retirement, but also the tax rate where you may be planning to move. For example, if you currently reside in a high tax state such as New York state and are planning to move to a low tax location such as Texas, that could have a major impact on your tax bill.”
#2 Selling Your Home
If you’re thinking about selling your home, it might be better to hold off until you’re officially retired. That way, you’ll have a clearer idea of what to expect in terms of finances and lifestyle needs.
“While selling your home to downsize or relocate might seem like a good idea, waiting until after retirement ensures you understand your real living needs and costs,” said Eliza Arnold, founder at Arnie.
#3 Withdrawing From Your Retirement Fund
If you have an individual retirement account (IRA), you might be considering withdrawing from it early. But if you do it too soon, you could end up facing tax implications. For example, many IRAs come with a 10% early withdrawal tax penalty if you try to use the assets before you’re 59 1/2 years old.
Similarly, you may want to hold off on collecting other benefits, such as those from your 401(k) plan or Social Security.
“Some companies begin pension payouts at 55, enabling employees to comfortably retire early,” said Tarek El Ali, founder at Smart Insurance Agents. “You can rely on your pension until 401(k) withdrawals start at age 59 1/2, and you become eligible to receive Social Security benefits at age 62.”
#4 Paying Off Your Mortgage
“For the last 50 years, we’ve been told that we should be debt free before we retire. In most cases, we would agree with that sentiment. However, the landscape has shifted, and making savvy financial moves for retirees can add tens of thousands of dollars to their retirement nest egg,” said Sean Casterline, president and senior portfolio manager for Delta Capital Management, an investment advisory firm in Orlando, Florida.
If you have a mortgage with a low interest rate and have the option of either paying it off or investing, you might want to consider investing now and paying it off later.
“At this point, there’s an arbitrage to be played by keeping your money invested and keeping your mortgage in place,” Casterline said. “If you are earning 8% to 10% in the markets and only paying a 3% mortgage, you make more money by keeping the mortgage and your investments in place.
“Several of our investors are taking that advice and actually having their mortgage payments sent out of their investment accounts as opposed to taking a lump sum out (that you can’t replace) to pay off the debt. It makes financial sense and could add tens of thousands of investment dollars to your retirement.”
#5 Making a Major Purchase
Retirement often comes with a major lifestyle shift. For some, it’s the ideal time to make that major purchase they’ve been holding off on. For example, you might be thinking about taking a year-long trip across the country in an RV.
But if you’ve waited this long, it might be better to wait a little longer before making that purchase. “Hold off on big-ticket purchases, like an RV or vacation home, until you have a clear picture of your financial health in retirement,” said Arnold.
Tyler added, “It is next to impossible to anticipate big market downturns or large surprise expenses in the final year or two prior to retiring.”
That way, if something does come up, you won’t have just spent thousands or hundreds of thousands of dollars on something only to realize you need the cash for something even bigger.
#6 Starting a Business
Many retirees live on fixed incomes, so their retirement years might seem like a good time to create a new income stream. But certain things, like creating a new business, require a lot of resources — ones you might not have while you’re still working.
“If you’re dreaming of starting a business in retirement, remember that it requires time, energy and money,” Arnold said. “So, it’s best to dive in once you’re settled into your post-career life. Always consider consulting a financial expert before making major decisions to ensure you’re on the right path.”
#7 Quitting Your Job
As you near retirement, you might be thinking about leaving the workforce a couple of years early. But this isn’t always the best idea.
“It is critically important that you control your own clock when it comes to retirement,” Tyler said. “Any big shock may make you want to defer that date a year or two. So professionally, don’t disengage from your job or industry until the very last minute.”
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