Costco Employee Retirement Guide

Willy Gevers |

By Trey Gevers CFP® | April 3, 2025

Introduction

As a Costco employee approaching retirement, careful planning is key to maximizing your benefits and securing a comfortable future. This guide, written by local Issaquah financial advisors, outlines financial strategies and retirement resources tailored to Costco employees in the final stretch of their careers.

1. Retirement Savings Optimization

Maximizing Your Costco 401(k) Plan

  • Employer Match: Contribute enough each year to receive the full 50% match on the first $500.
  • Catch-Up Contributions: If you are 50 or older, you can contribute an additional $7,500 annually (2024 limit: $30,500 total).
  • Investment Strategy: Begin shifting toward more conservative investments, while keeping some growth assets to stay ahead of inflation.
  • Rollover Options: Consider rolling your 401(k) into an IRA for greater investment flexibility and improved estate planning.

Employee Stock Purchase Plan (ESPP)

  • Diversification: Avoid over-concentration in Costco stock by balancing it with other investments.
  • Tax Strategy: To qualify for long-term capital gains treatment, hold shares at least one year after purchase and two years after the offering date.
  • Selling Strategy: Use phased selling and reinvest in diversified assets to reduce your overall tax impact, especially under Washington's new capital gains tax.

Individual Retirement Accounts (IRAs)

  • Traditional IRA: Rolling over into a traditional IRA may be beneficial if you expect to be in a lower tax bracket in retirement.
  • Roth Conversions: Converting some funds into a Roth IRA can lead to tax-free withdrawals in the future.
  • Required Minimum Distributions (RMDs): Begin at age 73 and should be factored into your income plan.

2. Social Security and Medicare Planning

Optimizing Social Security Benefits

  • Claim Timing: You can begin claiming at 62, but delaying until 70 increases your monthly benefit.
  • Spousal Benefits: Married couples should evaluate strategies for spousal and survivor benefits.
  • Taxation: Depending on your income, up to 85% of your Social Security benefits may be taxable.

Medicare and Health Coverage

  • Enrollment: Sign up for Medicare at 65 to avoid late penalties.
  • HSAs: Use Health Savings Account funds tax-free for medical expenses in retirement.
  • Long-Term Care: Consider long-term care insurance or set aside savings for future care costs.

3. Income Planning in Retirement

Creating a Sustainable Withdrawal Strategy

  • Budgeting: Estimate post-retirement expenses including healthcare, travel, and inflation.
  • The 4% Rule: A common rule of thumb is to withdraw 4% of your retirement savings annually, adjusting as needed.
  • Tax-Efficient Withdrawals: Withdraw first from taxable accounts, then tax-deferred accounts, and lastly from Roth IRAs.

Required Minimum Distributions (RMDs)

  • Start at 73: RMDs apply to 401(k)s and traditional IRAs.
  • Penalties: Failing to take RMDs can result in a 25% penalty.
  • Qualified Charitable Distributions (QCDs): Donating your RMD directly to a charity can reduce your taxable income.

4. Estate and Legacy Planning

  • Beneficiary Updates: Keep beneficiaries current on all retirement and insurance accounts.
  • Wills and Trusts: Establish a living trust to avoid probate and manage assets more effectively.
  • Gifting: You can give up to $19,000 per recipient per year without triggering gift tax (2025 limit).

5. Final Retirement Checklist for Costco Employees

✔ Review and maximize 401(k) and IRA contributions
✔ Create a Social Security claiming strategy
✔ Enroll in Medicare and review supplemental insurance options
✔ Adjust investment allocation based on risk tolerance and income needs
✔ Build a tax-efficient withdrawal strategy
✔ Finalize estate documents including wills and trusts
✔ Consider phased retirement or part-time work if desired

Conclusion

Costco provides a strong foundation for retirement, but it's up to you to make the most of it. By managing your 401(k), Social Security, Medicare, and long-term strategy wisely, you can step confidently into this next chapter. Review your plan regularly and adjust as needed to stay on track.

Have questions? Give us a call or stop by—our office is just a stone’s throw from Costco HQ.