Thursday, November 4, 2021

The Dos and Don’ts of Cashing in Your Retirement Funds

The age of 65 is significant for many of us; it can signal it’s finally time for retirement or time to sign up for Medicare vs traditional health care insurance. But what are the rules about withdrawing money from your retirement funds when the time comes?

With the elation that comes with retirement, and the opportunity to start a new chapter in life, it can be easy to forget that retirement funds are finite. Yes, you’ve been dutifully paying into your accounts for years, but it’s important not to stay mindful of your spending habits.

Resist These Temptations in Retirement

Did you know that if you withdraw money from your retirement account before you reach age 60, the funds will be subjected to a 10% penalty in addition to income tax? However, there are some ways you can navigate early withdrawal without the 10% fee tacked on.

Ways to Avoid Early Withdrawal Penalty

  • Wait until age 59 ½ to withdraw money from your IRA
  • Use the money for medical expenses that exceed 7.5% of your adjusted gross income
  • If you’re unemployed, early withdrawals can be made to pay for insurance premiums
  • After 12 weeks of unemployment, penalty-free withdrawals can be approved
  • Early withdrawals can avoid the penalty if used for education (room and board, textbooks)
  • An individual can avoid the 10% fee when up to $10,000 is withdrawn early to build/purchase a first home
  • Up to $5,000 can be withdrawn after the birth or adoption of a child
  • Military service exemptions
  • Inherited IRAs are only subject to income tax, not a penalty fee, for early withdrawal

Obviously, it’s ideal if you can avoid dipping into your retirement early, but life sometimes throws unexpected surprises at us!

Treating Retirement Like a Windfall

If you’ve resisted the temptation to withdraw money from your retirement funds early, the next tip is to avoid treating your retirement money like an unexpected financial windfall. Yes, you’ve planned for this season of life, but you should still budget responsibility so the money lasts. 

It can be tempting to indulge in splurges such as gambling or new cars when you retire. Better use of your retirement might be to invest in yourself, your relationships, or ventures with the potential for future earnings.

There’s nothing wrong with treating yourself in your retirement, but remember that a car loses value as soon as you drive it off the lot, so if you need or want to upgrade after you retire, do so wisely. 

If you want to travel and spend money on your hobbies, do so responsibly. If you want to help out family members financially, consider setting up repayment plans and treat the financial support as a personal loan vs a gift.

Waiting Until 65 to Enroll in Medicare

Did you know that you need to enroll in Medicare before your 65th birthday? This is an oversight many people make due to myriad reasons. Often, if an individual is still working at age 65, they have insurance through their employer. 

In this case, they are eligible to enroll in Medicare after turning 65. It’s when a person is not currently employed that they run the risk of paying a penalty for enrolling in Medicare late.

To avoid paying a higher monthly premium for Medicare, be sure you know the window of time during which you need to apply. Even if you have supplemental coverage between the time of retirement and your 65th birthday, start the transition to Medicare. 

If you’re already claiming your Social Security benefits prior to turning 65, you should automatically receive notice from Medicare about coverage when you turn 65.

How to Enroll in Medicare

If you’re not already receiving Social Security benefits before your benchmark, 65th birthday, you will need to take the reigns of enrolling in Medicare. 

Since many people are not accessing SS benefits until age 67, it’s important to contact Social Security regarding Medicare during the enrollment window, which is typically the span of three months before the month you turn 65, and three months after you turn 65. 

This seven-month period has different deadlines for different types of coverage, so it’s best to contact Social Security in the three months leading up to your birthday to avoid any lapses.

If you’re not sure how or when to enroll in Medicare, and what coverage you need, there are services such as MedicareCU, which partners with credit unions to offer education about Medicare.

The Dos of Retirement Spending

We’ve talked about what to avoid, now let’s focus on what you should do with your retirement money.

Invest in Yourself

We mentioned before that you deserve to spend your retirement money on yourself and your loved ones. After all, you’ve spent decades working toward your Golden Years, and now it’s time to enjoy them!


No matter what formal learning you already have under your belt, it’s important to continue learning after retirement. You now have the time to dive deeper into your hobbies and interests, so take classes for your favorite language, to learn more about technology, or how to grow the garden you’ve always dreamed of.


Investing in your health is always money well-spent. In retirement, be sure you’re staying active not just for your physical health, but your mental health as well. 

Participating in group fitness classes, taking solo walks, or lifting weights at the gym is not only good for you but good for your wallet. Regular exercise can help prevent costly health expenses in the future.


If you’re not used to having the freedom to do what you want once you retire, you may find yourself feeling aimless or depressed. Use your time and savings to experience the things you didn’t have time for when you were working full-time. 

Travel to visit family and friends, purchase a membership to a museum, or get season tickets for your local sports team. Having trips, exhibits, and games on your calendar can help you find a new schedule to live by that offers a sense of purpose and fulfillment.

No matter how you decide to spend your retirement, or when you access it, seek financial advice from a trusted advisor to avoid fees and overspending. 

If you’d rather keep track of your budgeting yourself, there are retirement calculators and apps readily available, or you can simply call your credit union or bank for updates on your account balances.

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