Many of us look forward to retirement, even when we enjoy our work. You may even be able to retire early if you’ve been able to meet your financial goals by making smart decisions. The laws regulating financial issues change frequently, so you need to learn about them before you reach retirement age. The following tips will show you how to make the best use of your assets if you plan to retire in 2020.

Savings

Individual retirement accounts (IRAs) include 401(k)s such as traditional 401(k)s and Roth 401(k)s.

You can make contributions to a 401(k) plan with pre-tax dollars, allowing you to reduce your taxable income. A 401(k) also allows you to achieve tax-deferred growth since you don’t pay taxes on your gains. You can begin taking funds from your 401(k) account at 59½, at which time you’ll pay taxes on your withdrawals.

Contributions to a Roth 401(k) are made after paying taxes, so you don’t get the upfront tax advantage of a traditional 401(k). However, your gains are also tax-free, as are your withdrawals.

Among the biggest changes for retirement plans in 2020 is an increase in your maximum annual contribution to $19.5K for a 401(k) and to $6K for most other IRAs. Once you reach age 50, the maximum contribution increases by another $6.5K for 401(k)s and by $1K for other IRAs. Furthermore, you can continue contributing toward your IRA past 70½, as there is no longer an age limit so long as you have earned income. You can also continue contributing toward your 401(k) through your employer regardless of your age.

Social Security benefits

Social Security benefits make up a large portion of retirement income for many people. The average benefit from Social Security was recently calculated at $1,478 per month, or about $17,700 per year. The actual benefit is based on income, so people who earned more income will receive a larger benefit. The maximum benefit for people retiring at the full retirement age was recently calculated at $2,788 per month, or about $33,500 per year. Social Security benefits typically increase each year to adjust for inflation.

The Social Security Administration website can provide you with a more precise estimate of the benefit you can expect to receive. Once you create your account, you can track your earnings by year to determine what your benefits will be based on the year when you claim them. You can begin claiming benefits any time between ages 62 and 70, although your benefits will increase the longer you wait. However, you’ll receive those benefits for a longer period of time if you claim them sooner.

The annual inflationary increase for Social Security benefits will be 1.6% in 2020, which is less than the 2.8% increase for 2019. However, it’s more than the 1.4% average annual increase in the cost of living from 2010 to 2019.

Healthcare

Healthcare costs during retirement can be easy to overlook, but it’s essential that you plan for them. Fidelity recently estimated that a 65-year-old couple retiring in 2019 can expect to spend an average of $285K out of pocket on healthcare during their retirement, not including Medicare premiums and long-term costs. The estimate from HealthView Services for such a couple is $387,644, which includes all premiums and out-of-pocket costs.

The most effective ways of reducing healthcare costs during retirement are to remain as fit as possible and to seek preventive care, including regular health screenings. Flexible Spending Accounts (FSAs) will allow you to save up to $2,750 before taxes in 2020, which you can use to pay for qualifying healthcare expenses such as eyeglasses, dental care, doctor visits and some medications. However, if you do not spend most of the money in an FSA, you will forfeit it.

A Health Savings Account (HSA) is similar in that contributions also are made pretax, but a difference is that you can invest the unused contributions. You can withdraw savings from an HSA without penalty after you retire, although you will pay taxes on your withdrawal. The standard maximum annual contribution for an HSA in 2020 is $3,550 for individuals and $7,100 for families, but people over 55 can contribute an additional $1K per year. Participation in an HSA requires a qualifying health insurance plan, which generally means one with a high deductible.

Medicare premiums will increase for 2020, although the exact amount depends on your income. The standard monthly premium for Part B Medicare was $135.50 in 2019, which will increase to $144.60 in 2020.

Refinancing

Many people don’t have enough savings to live comfortably when they’re ready to retire. However, retirees with a substantial amount of equity in their homes may have the option of using that equity to help finance their retirement. A reverse mortgage is one way to tap the equity in your home. In a reversal of the traditional mortgage in which a homeowner makes regular payments to the lender, in a reverse mortgage, the lender makes regular payments to the homeowner in exchange for equity.

The federal government offers a reverse mortgage known as a Home Equity Conversion Mortgage (HECM), which is insured by The Federal Housing Administration. Private lenders also offer reverse mortgages, although they aren’t insured by the government. Some reverse mortgages have restrictions on how the homeowner can use the proceeds.

A cash-out refinance such as Figure’s Mortgage Refinance is another tool that can help homeowners cushion expenses during retirement. In a cash-out refi, a homeowner borrows more than the amount of the original mortgage, taking the difference in cash. You can use the cash proceeds for any number of expenses, though renovations that will make your home more livable in retirement and increase its value are a popular choice. Others might choose to use the funds to pay down their high-interest debts.

Summary

A comfortable retirement requires planning ahead and saving early in your career. You also need to ensure that your knowledge of relevant laws is up-to-date when you retire, since tax laws routinely change each year. Even with thorough planning, you may find that you need additional help in financing your retirement.