What should Self-Directed IRA owners do right before they retire?

Are you reaching retirement age soon? Already pushing it? Ever thought about a Self-Directed IRA? It’s time to make some important decisions about your financial strategy going forward. Here are several things you should be thinking about as you transition into the retirement stage of your financial life cycle.

  • Roll back risk exposure. Now’s the time to begin reducing exposure to uncertainty and market risk. While most Self-Directed IRA owners are not fully invested in the U.S. stock market (diversification is one of the reasons why many investors choose to self-direct their retirement accounts in the first place!) investors should conduct a sober review of their portfolio and its exposure to various kinds of risks. For example, we know from the sad experience of 2008-2010 that real estate can be subject to every bit as much risk and uncertainty as the stock market, under some circumstances.
  • Reduce leverage. If your real estate IRA or other retirement account is heavily leveraged, you may think about working on toning it down. The more of your portfolio is mortgaged, the bigger the short-term unexpected swings there may be – and you don’t want to be on the wrong side of a bear market right when you retire, because you’ll have a hard time earning your way out of the hole.
  • Enroll in Medicare. If you’re turning 65 this year or next year, don’t get so focused on your Self-Directed IRA investing that you forget your Medicare initial open enrollment period. You have a window of seven months to formally enroll in Medicare. The initial open enrollment period begins three months before the month in which you turn age 65, and closes three months after the end of the month in which you turn sixty-five.

For example: If you turn 65 in July of 2018, your open enrollment period will open April 1st, and go through May and June – then July, your birth month, and then three more months after that: August, September and October.

If you miss your open enrollment period, you will have to pay significant penalties in the form of higher Medicare premiums.

  • Assess life insurance coverage. As people get older, many times they are carrying a lot of life insurance they don’t need anymore. With no dependent children, and a comfortable nest egg for both spouses to retire on, it may make sense to convert a substantial life insurance policy into an annuity using a Section 1035 exchange. The law allows those who bought life insurance early in their lives to convert their life insurance policies into annuities, tax free, to unlock another source of retirement income. Some people choose to use the annuity to pay long term care insurance premiums. Others just convert the annuity to income, either now, or at a higher rate later.
  • Decide whether to take Social Security Benefits. You can begin taking a reduced Social Security Benefit beginning at age 62. However, the longer you wait, the greater your monthly benefit will be, until you reach full retirement age. In most cases, if you’re in poor health, it makes sense to begin taking the benefit early. If you’re in excellent health, and expect to live well past full retirement age, you’re actuarially better off waiting and maximizing your monthly benefit over a long retirement.