Costco Employee Retirement Guide

Willy Gevers |

Introduction

As a Costco employee approaching retirement, careful planning is essential to maximize your benefits and secure a comfortable future. This guide written by local Issaquah financial advisors focuses on key financial strategies and resources available to Costco employees in the final years of their career, helping you transition smoothly into retirement.

1. Retirement Savings Optimization

Maximizing Your Costco 401(k) Plan

  • Employer Match: Ensure you have contributed enough to receive the full 50% match on the first $500 of contributions each year.
  • Catch-Up Contributions: If you are 50 or older, you can contribute an additional $7,500 annually, bringing your 2024 limit to $30,500.
  • Investment Strategy: Shift to a more conservative asset allocation while maintaining some growth investments to outpace inflation.
  • Rollover Options: Consider rolling your 401(k) into an IRA for greater investment flexibility and estate planning benefits.

Employee Stock Purchase Plan (ESPP)

  • Diversification Strategy: While Costco stock is a solid investment, avoid over-concentration by balancing it with other assets.
  • Tax Considerations: Holding stock for at least one year after purchase and two years after the offering date qualifies for long-term capital gains treatment.
  • Selling Strategy: Plan phased sales to minimize tax impact and reinvest in diversified assets. (This is especially important with the newly introduced WA state capital gains tax)

Individual Retirement Accounts (IRAs)

  • Traditional IRA: If you expect a lower tax bracket in retirement, consider rolling part of your 401(k) into a traditional IRA.
  • Roth IRA Conversions: Converting some 401(k) or traditional IRA funds to a Roth IRA can provide tax-free withdrawals later.
  • Required Minimum Distributions (RMDs): These start at age 73 and must be factored into your income planning.

2. Social Security and Medicare Planning

Optimizing Social Security Benefits

  • Claiming at the Right Time: While you can claim as early as 62, delaying until 70 maximizes monthly benefits.
  • Spousal Benefits: If married, evaluate spousal and survivor benefits for an optimized claiming strategy.
  • Taxation of Benefits: Up to 85% of Social Security income may be taxable based on other retirement income.

Medicare and Health Coverage

  • Medicare Enrollment: Sign up at 65 to avoid penalties; Costco retirees may need supplemental insurance.
  • Health Savings Accounts (HSAs): Use HSA funds for tax-free medical expenses in retirement.
  • Long-Term Care Considerations: Evaluate long-term care insurance or self-funding strategies.

3. Income Planning in Retirement

Creating a Sustainable Withdrawal Strategy

  • Budgeting for Retirement: Estimate your post-retirement expenses, including healthcare, travel, and inflation adjustments.
  • The 4% Rule: A general guideline is withdrawing 4% of your savings annually, adjusting for market conditions.
  • Tax-Efficient Withdrawals: Withdraw from taxable accounts first, then tax-deferred accounts, and finally tax-free Roth IRAs.

Required Minimum Distributions (RMDs)

  • Start at Age 73: RMDs apply to 401(k)s and traditional IRAs; failure to withdraw results in a 25% penalty.
  • Qualified Charitable Distributions (QCDs): Donating RMD amounts directly to charity can reduce taxable income.

4. Estate & Legacy Planning

  • Update Beneficiaries: Ensure your 401(k), IRA, and life insurance beneficiaries are current.
  • Wills and Trusts: Consider a living trust to avoid probate and manage assets efficiently.
  • Gifting Strategies: You can gift up to $19,000 per year per recipient tax-free (2025 limits).

5. Final Retirement Checklist for Costco Employees

  • Review 401(k) and IRA contributions to maximize savings before retirement.
  • Plan an optimal Social Security claiming strategy.
  • Enroll in Medicare and evaluate supplemental insurance options.
  • Assess investment allocations for risk and income needs.
  • Create a tax-efficient withdrawal plan to minimize lifetime taxes.
  • Finalize estate planning documents, including wills and trusts.
  • Consider part-time work or phased retirement if desired.

Conclusion

Costco employees nearing retirement have access to excellent benefits and financial tools. By carefully managing your 401(k), Social Security, Medicare, and overall financial strategy, you can transition into retirement with confidence. Regularly reviewing your plan and adjusting as needed ensures a secure and fulfilling retirement.

If you have questions on any of the above, feel free to give us a call or drop by our office, we are a stones throw away from Costco HQ!