Planning to Retire in 2016? Here's What to Do Now

By Retirement SmartAsset.com

If your retirement is in the works for the new year, you don’t want to wait until the last minute to prepare yourself for your new lifestyle. Putting your financial house in order sooner rather than later can help you make a smooth transition out of the workforce. Not sure where to start? Here’s a checklist of the bases you’ll need to cover if you’ll be retiring in 2016.

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Find out now: How much do I need to save for retirement?

1. Check Your Post-Retirement Budget

One of the hardest adjustments for many new retirees is seeing their income change once they’re no longer working. When the flow of money coming in slows down, it can create major gaps in your budget if you’re not ready.

Anticipating the kinds of expenses you’ll have in retirement can give you an idea of whether you have enough money set aside to maintain the lifestyle you want. If you’ve still got several months to go before you leave work behind, you’ve got an opportunity to take your budget for a test run to see if it’s realistic.

2. Run the Numbers on Social Security

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If you’ve built up a decent nest egg, supplementing your retirement income with Social Security benefits may not be on your radar yet. But if it is, it’s a good idea to do the math to see how much you stand to get. For 2016, the maximum benefit for someone who’s retiring at full retirement age is $2,639 a month. The estimated average payment, however, comes in at $1,341.

The amount of benefits you qualify for depends in part on when you apply. If you take Social Security at age 62, you’ll get a reduced monthly payment. If you wait until you’re 70, on the other hand, you’ll see your monthly benefits increase. So it’s best to run the numbers before you retire.

Check out our Social Security calculator.

3. Plan for Health Insurance

You’re eligible to apply for Medicare once you hit the three-month period prior to turning 65. But if you’re planning to retire before then, you’ll need to make sure you can fill in the gaps with health insurance. If you were covered through your employer, you have the option of getting COBRA coverage. Or you can purchase a policy through the federal healthcare marketplace.

If you have money in a health savings account, you also need to decide what you’re going to do with it before you retire. If you’re happy with the plan you can just leave it with your employer until you need to use it. You also have the option of rolling it over into another HSA. Once you turn 65, you can withdraw the money for any purpose without a penalty, although you will pay regular income tax on any distributions that aren’t used for medical expenses.

4. Look Ahead to Next Year’s Taxes

Even though 2016 is barely underway, it’s never too early to start thinking about how retiring is going to affect your taxes. For starters, it’s important to plan for taking distributions from your retirement and investment accounts.

As a general rule of thumb, it might be best to start with taxable accounts first. Any gains you see on your investments would be taxed at the capital gains rate. If you’ve held the investment for longer than a year, the tax rate ranges from 0 to 20%, depending on your income.

Next, you can move on to tax-deferred accounts, such as your 401(k) or traditional IRA. Withdrawals from these accounts would be taxed at your regular rate. It’s a good idea to wait to take distributions from your Roth IRA account since it won’t be taxed by the federal government in retirement.

Try out our federal income tax calculator.

5. Don’t Forget About RMDs

If you’ve waited a little longer to retire, there’s one important tax consideration you don’t want to overlook. Once you turn 70 1/2, you have to take required minimum distributions from any tax-deferred accounts you have, including employer-sponsored retirement plans, traditional IRAs and SIMPLE IRAs if you’re self-employed.

If you’re required to take a minimum distribution in 2016 but fail to do so, a 50% tax penalty applies. That could take a serious bite out of your retirement savings if you’re not careful.

This article originally appeared on SmartAsset.com.

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