12 Keys To Retiring From the Oil & Gas Industry with Confidence
Retirement is coming soon, and you know you should be excited. But some of us have so many questions and concerns about retirement that we’re more nervous than anything else.
At Warren Street Wealth Advisors, we’ve helped those inside the oil & gas industry navigate this crucial but confusing time. In the process, we’ve learned local companies’ retirement programs and employee benefits inside and out. So we put together a list of our 12 keys to retiring from the oil & gas industry with confidence.
1. Have A Plan
Nothing else in this post matters if you don’t have a personalized financial plan. We believe this so strongly that building a personalized financial plan is the first thing we do with every one of our clients.
A personalized financial plan is the roadmap to your comfortable, stress-free retirement. You can know your benefits inside-out and be clever about taxes and investments. But if you don’t have a map for navigating your retirement, you’ll never feel confident along the way.
2. Seriously, Have A Plan
I wrote that twice because I wanted to be certain you see how important this is.
Having a plan is essential for any major life decision, and navigating your retirement with wisdom and confidence is certainly part of a major life decision!
OK, let’s move on…
3. Make Sure Your Retirement Timing is Correct
When you go to retire, make sure you are doing so at an advantageous time. Eligibility for annual bonuses, vacation days, or vacation payouts could all be dependent on when you retire from the company.
For some local companies, retiring in April will make you eligible for your next year’s bonus. If you do not work the first quarter, you will be ineligible for the bonus.
So at this company, for example, if you retire in May of 2016, then you would be qualified for 5 months (or 5/12ths) of the 2017 bonus. Remember, it all adds up, and this can be helpful as you begin to transition into retirement.
4. Utilize Your Vacation Time
If you retire at a time where you are eligible for vacation days or can get paid out on the vacation days, use them! You earned the time!
For some companies, each year on January 1st, your vacation time resets and for every month of work, you are eligible for 1/12th of your vacation time (whatever that may be depending on how long you’ve been with the company).
If you don’t want to use your vacation time, then some companies will pay you for the vacation days you do not use. If you had 2 weeks of vacation, they you would get 2 weeks worth of pay.
5. Retire After 55 But Before 59½ Without Paying Penalties
Here’s a scenario we see all the time: you’re 57. You want to retire. You don’t want to wait until you’re 59½ to do it. But you know that there’s a 10% federal tax penalty and a 2.5% California state tax penalty if you take money out of your 401(k) before then. So are you stuck?
Leave some money in the 401(k) to avoid penalties. Some oil & gas companies have provisions in their plans that allow flexibility when it comes to taking withdrawals. Whether this be a one time withdrawal or setting up a monthly distribution, there may be a way to get around those pesky penalties.
There are a lot of moving parts here, but at WSWA, we use these rules to make certain that none of our clients pay penalties. Ever.
6. Budget Your Medical Subsidy
Medical benefits can cost substantially more from some companies in the oil & gas industry while you’re in retirement. Make sure you are properly planning for medical coverage in retirement and making it a part of your budget. We recommend a quick call to your benefits department and ask them to run a calculation of expected cost for your medical insurance in retirement.
A spouse may have a better or more affordable medical benefit. Be sure to examine all of your options.
7. Say “Goodbye” To Credit Card Debt
If you have significant credit card debt, then it’s time for a plan (there it is again!), a budget, and some hard work.
Credit card debt can be intimidating, but you can pay it off! At WSWA, one of our favorite things to see is a client freeing himself or herself from the stress of mounting credit card debt. You may just need some help and a plan.
8. Build Up 6 Months Worth Of Emergency Savings
We’re always optimistic about the future, but sometimes life takes surprising and difficult turns. Wise financial planning means being prepared for those situations.
We recommend that you save at least 6 months worth of living expenses in case of an emergency. So if you need $4,000/month to live, then have around $24,000 saved in savings and checking. That way, you’re prepared for the ups and downs that can happen.
9. Build And Keep A Budget
We get it: it’s no fun to build a budget. But writing down all your income and expenses will help you identify where you can save.
Building a budget doesn’t mean eliminating all of your fun, either. Get rid of the stuff you don’t use and keep what makes you happy! Do shop your auto insurance around for a better rate. Do call your phone company and reduce your bill. Don’t quit your bowling league if bowling makes you happy.
Not sure where to start with your budget? No problem. Use our free budget builder to make it easy.
10. Wait Until Full Retirement Age To Take Social Security
There is all kinds of information out there about what to do about your social security. Let me boil it all down to one simple point for you: you don’t have to take it at 62! When we build a financial plan for a client, we use a tool that calculates all options for optimizing social security. And no matter how many times we do it and how many ways we look at it, one thing becomes clear every time: it’s usually best to wait at least until your full retirement age (66-67) to take social security.
There is also plenty of evidence to support waiting until age 70 too as the 32% increase in benefit can prove worth the wait. These decisions are typically based around your health at age 62 when deciding to collect or to continue to defer. It’s ultimately your decision, and we suggest weighing your options before committing to collecting the 25% reduced benefit at age 62. *Note if your full retirement age is 67, collection social security at age 62 is 30% decrease in benefits. Long story short… it pays to be patient.
11. Use Your 401k Efficiently
Max it out. Diversify your investments. You could hire a pro (like us!) if you don’t love following the markets.
Maybe your 401(k) program allows you to buy common stock shares or has an ESOP programs. These can be hard to understand at times and also have significant tax implications. NUA? Ordinary rates vs. capital gains rate? What?
Make sure you are being tax efficient with your 401(k) when it comes to planning for retirement and managing your tax bill when you retire.
Plus, hiring a pro means you’ll have more time for bowling.
12. Have A Plan
You didn’t think this was going to end without one more reminder, did you? If you’re not sure where to start with your financial plan, that’s OK: we can help.
Plus, if you’re confused about any of the information above, then setting up a plan with a CERTIFIED FINANCIAL PLANNER™ (like our very own Aileen Danley, CFP®) is the easiest way to walk through all of it.
Schedule a free consultation to talk through your finances and take the first step toward building a confident retirement.