11 FAQs and concerns for people less than 5 years from retirement.

1. Will I outlive my savings? After all, Social Security only covers about 40% of pre-retirement income on average. 

Stepping away from the paycheck that provided for your fondest memories is hard enough, feeling confident your savings won’t run out is a whole other concern. Tomorrow is never certain, but if you can check these boxes you are likely looking good.

1. No debt and or very modest low interest mortgage with significant home equity.

2. Cash savings outside of your work retirement plans.

3. You know how much you spend.

4. 4-5% of your retirement savings could provide about what you need to live on. This is often referred to as the ‘safe’ withdrawal rate. This is a general guideline and individual situations vary. For example if after Social Security you need about $75,000 your investments are roughly $1,500,000 to $1,800,000 or are on track to get there. (This number can vary depending on how you're invested and if you are willing to withdraw less in bad years.)

2. How do I minimize taxes in retirement? Make sure you consult your tax pro before implementing.

   1. Pre-tax 401(k) funds will be taxed as income when you withdraw. This makes big withdrawals potentially very costly. To combat this, tax planning aims to flatten your taxable income each year to take advantage of lower brackets and avoid higher brackets. Strategies include:

      1. Converting pre-tax to Roth in early years of retirement and living off cash savings to take advantage of lower brackets. For example, "Converting pre-tax funds to Roth accounts can be beneficial because you pay taxes on the conversion while in a lower income tax bracket during early retirement, and then future Roth withdrawals are tax-free. To do this without increasing your current taxable income too much, you might use your existing cash savings for living expenses during the conversion period."

      2. Planning withdrawals from pre-tax 401(k)s and IRAs to avoid a large withdrawal. For example, If you need $200,000 for an addition on your home. You might withdraw half in December and half in January to spread the income over 2 tax years.

   2. Tax savvy ways to give to charity:: If you regularly give to charity you could be missing out on the most tax advantaged way to do so.

      1. You can give stocks vs cash: Want to give a large sum to St. Judes? Let’s say you bought AAPL back when it was $20 per share, it’s now at $200 as I write this. Instead of selling and paying capital gains taxes on the $180 per share in profit you can transfer the shares and St. Jude’s can sell and pay no taxes. Say you gave $20,000 in shares, they get $20,000 and you may have saved upwards of $2,700, or more depending on your capital gains rates, in taxes just from giving shares over cash. It’s all the same to St. Judes.

      2. Giving from your IRA: if you are over 70 and a half you can write checks from your IRA to your charity of choice and avoid it counting as income at all. This is called a Qualified charitable distribution. 

      3. Want to give a large sum now but don’t know where? Enter Donor Advised funds: This allows you to transfer money or stocks without immediately transferring to charity. This can make sense if you have an unusually high income year, you might decide to give 5-10 years worth of charitable donations in 1 year. So if you usually give $10,000 per year you would move $100,000 and give from your donor advised fund for the next 10 years. This would give you an upfront tax deduction.

         
         

3. How will I replace my paycheck?:

   1. Social Security on average replaces 40% of pre-retirement income, however the more you earn the lower this percentage is likely to be.

   2. If you don’t have a pension, the answer will have to be your investments, whether it be in a  401k, IRA, Roth IRA, annuity, taxable account or trust.

   3. You may desire investments that pay income, but selling shares of stocks you own is another way to generate the cash you need. All investments have risks, even cash, but investments that promise high income are taking more risks to deliver that income. Depending on how you're invested you may not need to make major changes to your investments, despite retirement being a major change.

      
      

4. How should I invest my money?

   1. In my opinion you should be invested based on these primary factors: How long will you be investing for/when will withdrawals occur? How much are those withdrawals relative to my balance? And how comfortable are you with investment fluctuations?

   2. If you have no need for withdrawals or little, such as 1-2% of the balance annually. Maintaining a growth portfolio might not be all that risky, because even if your investments are cut in half you’d still be at a modest withdrawal rate 2-4%. This could make sense if you don’t stress about fluctuations and want to maximize growth for your legacy and or charitable endeavors.

   3. If you need regular portfolio withdrawals a balance between growth and income might be the ticket. I’d consider an investor in their 60s a young investor, you could very likely need to sustain a 30 year retirement. The income portion can help navigate the early years of retirement that are crucial to survive bad markets and have the growth portion to provide for the next two decades.

   4. However, if you don’t want any negative fluctuations in your balance from investments, then sticking to fixed investments like short term US Treasuries, CDs, Money Markets, and fixed annuities might be better for you. No portfolio comes without risks, going with this option puts you at risk of inflation eating away at your purchasing power. I’d rather make 4% in a portfolio I am comfortable with then invest in growth investments that I am not comfortable with and sell when the market is down for a loss.

      
      

5. All my friends are still working, what will I do? 

   1. Sometimes you’ll be ahead of your friends financially and emotionally when it comes to retiring. The options are endless so here are some considerations.

   2. Retirement communities: I’ve never met anyone who regretted their decision to move to a retirement community. They spend more time with their friends than they have all their adult lives in most cases.

   3. Volunteering: is a great way to meet like minded people doing something you’re passionate about.

   4. Join a club: Walking clubs, biking, hiking, the options are endless.

   5. Start pursuing your passions before your retirement to make sure you really like them. Some people really do golf or fish everyday, but most can still struggle to fill up their days with their favorite activities.

   6. If you have young grandchildren nearby, don’t worry you’ll be plenty busy!

      
      

6. My family dynamic is changing how to balance aging parents and my adult children?

   1. This is a tough space to be, I see my parents going through this. I don’t have the perfect answer, but you can help your kids by being prepared.

   2. Good retirement planning can help you maintain your financial independence so your children don’t need to.

   3. Getting your estate in order, dust off your old Will and get to an Estate Attorney. Everyone has heard a family horror story about how messy things were, get things in order.

   4. Planning on retirement communities and assisted living now may be a good investment in your health and well being as well as your children’s.

   5. Plan family vacations, if you can swing it, creating a family tradition for vacations can help bring your family together from across the country.

      
      

7. Health insurance in retirement, what are my options?

   1. Prior to Medicare at 65:

      1. Spouses coverage: If your spouse is still covered you may be able to join their plan. Review with their benefits team for costs and coverage compared to your current plan.

      2. COBRA: you can continue on your current workplace plan for 18 months after your retire, however the sticker shock is real. You’ll now be responsible for covering the cost. Contact your benefits team to understand the details.

      3. Retiree benefits. Some employers offer retiree healthcare benefits, be sure to check with yours.

      4. Marketplace plans: Established by the Affordable Care Act where you can browse healthcare plans based on your income. This makes your retirement income and tax planning all the more important.

      5. Short-term coverage: Short term plans exist to cover temporary needs for coverage for a few months.

         
         

   2. Medicare: 

      1. Part A (Hospital Insurance): Covers inpatient stays, skilled nursing, hospice, and some home health; usually premium-free. 2025 deductible: $1,676.

      2. Part B (Medical Insurance): Covers doctor visits, outpatient care, supplies, and preventive services; has a monthly premium (starting at $185.00 in 2025) and an annual deductible ($257 in 2025). After deductible, Medicare pays 80%, you pay 20% with no annual cap.

      3. Medicare Part C (Medicare Advantage): Private insurance plans combining Part A and B (and sometimes D); often low/no premiums but varying deductibles/copays; may offer extra benefits like dental/vision; requires using provider networks; you still pay Part B premium.

      4. Medicare Part D (Prescription Drug Coverage): Helps cover drug costs; obtained through private carriers or some Medicare Advantage plans; requires creditable coverage to avoid late penalties. "Requires creditable coverage (meaning your existing drug coverage is considered as good as or better than Medicare's standard coverage) to avoid late penalties."

      5. Choosing Coverage: Options are Medicare Supplement (Medigap) + Part D (monthly premium, usually no copays, doctor choice flexibility) or Medicare Advantage (low/no premium, copays, network restrictions, may include drug/dental/vision).

      6. IRMAA: Income Related Monthly Adjusted Amount, an increase to Part B and D premiums based on income from two years prior. This applies if your income passes certain thresholds.

      7. Key Dates:

• 6 months before transitioning: Review your options

• 60-90 days before transitioning: Apply for Parts A and B.

• Once Medicare ID card received: Enact Medicare plan.

• Annual Enrollment Period (AEP): Oct 15 - Dec 7 (Part D & Advantage review).

• Open Enrollment Period (OEP): Jan 1 - Mar 31 (Medicare Advantage review).

• Working Past 65: You can delay Medicare enrollment if you have employer-sponsored health insurance with creditable drug coverage from an employer with 20+ employees. Automatic enrollment in Parts A and B occurs if receiving Social Security benefits 3+ months before age 65.

8. How can I protect my family from Long-term Care, AKA nursing home costs?

   1. Some studies show that up to 70% of people 65 or older will experience some need for long-term care with 48% needing paid care in their lifetime.

   2. Monthly costs for a private room in New York and Massachusetts average around $16,000 per month. So having no plan is not an option.

   3. Medicare offers little to no relief on this issue.

   4. You might also want to consider the level of care that you’d like to receive. This is especially important if you are considering Medicaid strategies (the state pays for care) with your estate attorney. Protecting your assets from the nursing home usually also means you lose control yourself. You also need to think about the quality of care in a Medicaid bed versus private. You may also want to consider where that bed may be, because it might be hours away from home.

   5. Long-term care insurance whether in its pure form or the hybrid life insurance long term care plans offers a way to help you prepare for these costs via insurance. Important to note that because of the likelihood of having a LTC need, costs are high. Annual costs vary based on age, sex, and overall health, but expect a number in the mid single thousands to start and be prepared for the number to rise each year. You also need to be mindful of the definitions to meet the requirements to have your LTC policy start to pay out.

   6. Self funding could be an option. Depending on how much you have saved and invested, paying for it outright can afford you the ability to have more control over your care and if you didn’t end up needing it great! 

   
   

9. How long will it take to get used to retirement?

   1. Of course this varies, but in my experience the first year of retirement can be weird. At first relief and relaxation. It still tends to feel weird not getting a paycheck, after all you may have gotten one on Thursday for 40 years so this won’t become normal overnight. But after about a year it tends to become your new normal.

   2. The first market decline is usually scary, even if you're well prepared with a good retirement plan in place, but it will be the first time you experience a decline in retirement. Once you get through that, the next ones are usually less scary.

   3. Your daily routine could very well feel busier. Many retirees report feeling busier than ever. You no longer have a reason (work) to say no to things. It may become important to just say no, without justification.

   4. After a couple of years your retirement is probably in its groove, hopefully spent with the people you care about doing the things you enjoy, while understanding some things never change. The house needs work, cars break down etc.

10. Should I pay off my mortgage first and do all the work to the house?

    1. Mortgage payoff is a really personal thing. If you have a low interest rate, say, below 4%, a spreadsheet would say, make minimum payments and keep the rest investments. However, if it is a goal of yours to pay off your mortageg, pay it off. My wife and I would like to be mortgage free, so even with a low rate we would make sure it’s paid off. 

    2. I see homeowners fall into the trap of, “We are going to do all the maintenance now, roof, siding, heating and cooling system now so we don’t have to worry about it again.” This sounds good, but as a homeowner of a new construction home let me say that the house always needs work. I would only do a roof if it is needed. I’ve seen brand new heating systems go after a few years.

       
       

11. When should I take Social Security and is it taxed?

    1. For most retirees with income in addition to Social Security, it will be taxed in some way. Up to 85% of your benefit is subject to taxation. Keep in mind this doesn't mean you’ll pay 85% on your benefit, it means up to 85% of your benefit will be taxed at your regular income tax rates. 15% is always tax free.

    2. Generally, delaying to at least your full retirement age, for most that is 67, and often the best plan is to wait until 70. 

    3. For more detail check out, https://tomkiewiczwm.com/blog/when-is-the-best-time-to-take-social-security

The information in this blog is the opinion of Nathan Tomkiewicz and does not reflect the views of any other person or entity unless specified. The information provided is believed to be  reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through Tomkiewicz Wealth Management, LLC, an investment adviser registered with the State of New York.