4 Things to Know About Retirement

Many of us look forward to retirement as the reward for a lifetime of hard work. While the postwork years can truly be golden for those who plan for them, many retirees are caught off guard by their new life. Here are some things you should know before you leave the working world for good.

1. Required minimum distributions (RMDs) can seriously raise your costs: Once you reach age 70 1/2, you’re typically required to take money out of your traditional IRA and your traditional 401(k) plan each year. While those distributions start relatively small, they increase as a percentage of your account balance each year. Withdrawals from these accounts are taxable, and the increase in your taxable income may expose your Social Security benefits to taxation, too, while possibly increasing your Medicare Part B premiums.

2. It gets harder to wait out a bad market once you retire: While you’re working and adding money to your retirement accounts, your salary covers your costs of living. That makes it easier to power through a nasty bear market and wait for the recovery. Retirees are more vulnerable to market downturns, so aim to have at least a fiveyear buffer of bonds and cash to see you through bad spells.

3. Other than health-related costs, your expenses may actually go down in retirement: Many older Americans have paid off their mortgages, and their adult children are self-sufficient. Also, people generally slow down as they age. While early retirement may feature frequent travel, older retirees tend to stay put more and thus spend less.

4. Depression is a widespread issue among retirees: When you leave the workplace, you lose the regular socialization that goes with it, along with the daily mental and physical activity. The deaths of aging friends and family members are also a contributing factor. The happiest retirees find meaningful ways to fill their days. Caring for family members, doing charitable volunteer work or even working a low-stress job can keep you active and provide you with purpose, stimulation and social support.