Retiring in 2022? Here's how to prepare

So you've finally decided 2022 is the year you are going to retire.

By this point, you have likely been saving money throughout your career via a Roth IRA, a 401(k) retirement plan or something similar. But the question is now, what do you do with all that money, and how do you ensure your funds last through your retirement years?

Deciding to retire from the workforce is a big decision. Whether you want to spend more time with friends and family or pick up a new hobby, it is essential to plan out your finances before leaving the security of your old job. Getting your affairs in order now will allow you to truly enjoy all your newfound free time, however you decide to spend it.

If you're not sure where to start, follow these simple steps to kick start your retirement and the next phase of your life:

1. Weigh your social security options

Once you turn 62, you are eligible to start receiving social security payments. However, if you don't need the money immediately, it may be more beneficial to wait until you have reached your full retirement age. While your full retirement age depends on your year of birth, usually around age 66, the longer you wait, the more money you will be eligible to receive. More specifically, if you opt to start accepting payments as early as 62, you will receive a permanently reduced rate.

Assessing your financial situation and determining when to start receiving these payments is crucial to budgeting your retirement funds. Always be sure to check and double check your strategy to insure your are optimizing your unique social security claiming strategy.

2. Set up your health insurance

While some jobs may offer continued health insurance after you retire, many do not. Other options include health insurance through a spouse's workplace or professional organizations. However, if those options aren't available or not preferred, Medicare is the most common option for health care plans after retirement.

Once you turn 65, you are eligible to enroll in Medicare. Medicare has two basic components Part A and Part B. It is critical that you understand what is and is not covered and then seek to fill the gaps with a custom tailored Medigap Plan or Medicare Advantage Plan. Regardless of what route you choose to obtain health insurance after retirement, it is essential to have a plan in place before your current coverage expires.

3. Determine what taxes you may owe

Taxes can be a significant obstacle when it comes to retirement planning. Unfortunately, many sources of senior income are subject to income taxes. Having a plan to withhold at the source and/or properly sized quarterly estimates are critical to insure you don't have any under estimated tax penalties or interest.

In addition, having a command of your after-tax income is basic table stakes to insure you have a proper retirement budget.

If your savings are stored in a traditional IRA or 401(k), you will be taxed on your withdrawals. In addition, your social security payments may also be taxed depending on your total income. Whatever your financial situation, make sure to account for these taxes or work with a professional to on strategies to potentially lower your future tax burden.

4. Set up a spending plan

As you gradually shift from the mindset of a lifetime of saving to spending in retirement, you have to be strategic about budgeting so you don't overspend in your early years of retirement and face financial stress later down the road. Take the time to go over your expenses and budget for your lifestyle.

And don't forget to account for sizable emergency funds as you move into retirement as you don't want the unexpected to put a dent in your monthly finances.

Preparedness and flexibility are key when it comes to building out your plan. Retirement should be exciting and worry-free; that is why it is so vital to be proactive about your finances now so you can spend the rest of your life pursuing the things that drive fulfillment.

• Craig Bolanos is CEO and founding partner of Wealth Management Group in Inverness and Downers Grove.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax adviser.