10/7/2011 7:08 PM ET|
The 10 hardest retirement decisions
Before you decide to take this big step, take time to figure out the specifics: It can have a tremendous impact on the lifestyle that awaits.
The decision to retire can be sparked by a number of factors: reaching a specific age, hitting a savings goal or being laid off in a tumultuous job market. To support yourself without income from a job, you'll have to make a series of choices about Social Security, health coverage and your investments. Here are 10 of the toughest decisions you will make before you retire.
1. When to retire. For some people, it's a financial calculation. You know you're financially ready when the combination of your Social Security, traditional pension and investment income produces enough cash flow to cover all of your anticipated expenses for the rest of your life.
"Working two or three more years can make an incredible difference to your long-term plan if you continue to save in your 401k or 403b and continue to pay into Social Security," says Mary Alpers, a certified financial planner and the founder of Alpers and Associates in Colorado Springs, Colo.
But retirement also often involves an identity shift from your former job title to a free agent. Sometimes this decision is made for you because of a layoff or buyout. Many people also like to coordinate their retirement with that of a spouse.
2. When to claim Social Security. You can sign up for Social Security beginning at age 62, but payouts increase for each year you delay claiming until age 70. "Wait as long as you possibly can, because the additional percentages that are added on are enormous," says Jane Nowak, a certified financial planner for Kring Financial Management in Smyrna, Ga. "Since we are living longer, you certainly want your paycheck from Social Security to be as fat as possible."
3. Health coverage. It's essential to find affordable health insurance if you want to retire before age 65. "If you are not entitled to retiree medical benefits or if they are deferred to a later date, make absolutely certain you have access to and can qualify for individual coverage," says Robert Henderson, the president of Lansdowne Wealth Management in Mystic, Conn. "Also verify the costs. Health insurance can be prohibitively expensive in some cases."
Even after you qualify for Medicare, the decisions don't end. You have to choose whether to purchase a supplemental policy and shop around for the Medicare Part D plan that best meets your prescription drug needs each year in retirement.
4. How much you can safely spend each year. If your nest egg isn't big enough to finance your retirement completely, you'll need to calculate how much you can safely spend each year without depleting your savings too quickly.
"Three to 4% is my comfort zone, and I hope less," says Alpers. An annual draw-down rate of 4% on an investment portfolio with 35% in U.S. stocks and 65% in corporate bonds has an 89% likelihood of lasting 35 years or more, according to Congressional Research Service estimates. (Are you saving enough for retirement? Check with MSN Money's calculator.)
5. How much investment risk. Retirees need to balance their investment needs for safety and continued growth. "Hold as little equities and higher-risk assets as possible, while still enough to meet your long-term goals," says Henderson. "Most retirees need no more than 50% to 60% in equity and equitylike investments." You'll also need an emergency fund and several years' worth of living expenses set aside in a safe place.
"Always make sure that you have your first three to five years of withdrawals invested in very conservative investments. Good choices are CDs, money market accounts, short-term Treasurys or mutual funds that invest in them, and fixed immediate annuities," says Henderson. "This way, regardless of what the stock market is doing today, you don't have to worry about withdrawing assets that have dropped in value."
6. When to pay taxes. After decades of deferring taxes on your retirement savings using 401k's and traditional individual retirement accounts, the tax bill becomes due upon withdrawal in retirement. The timing of these withdrawals could affect how much you pay in taxes.
"Try to balance out your withdrawals from taxable and nontaxable accounts each year so you are not kicking yourself into a higher tax bracket at some point," says Henderson. Taking a large IRA withdrawal in a single year could result in an oversized tax bill. Withdrawals from traditional retirement accounts become required after age 70 1/2.
7. Where to live. Once you are no longer tethered to a job, you can live anywhere that suits your tastes and budget. Moving to a place that costs less than where you live now can boost your standard of living and help stretch your nest egg. You could also test out a place with better weather or more opportunities for recreation, or move closer to family.
8. Whether your home should help finance retirement. A paid-off mortgage can help finance your retirement because it eliminates one of your biggest monthly expenses. In some cases, downsizing to a smaller home or moving to a place where the cost of living is lower can give a significant boost to your nest egg.
"Especially if you live on the East or West Coast, where housing can be extremely expensive, you may have an opportunity to downsize and realize quite a bit of the appreciation you had in your real estate," says Henderson.
9. Whether to keep working. A part-time job is increasingly common in the retirement years. Many people downshift to a job with shorter hours and less responsibility before retiring completely, while others return to work after a break. Income from a part-time job can allow you to withdraw less of your retirement savings each year. Some people also find jobs they enjoy that allow them to interact with former colleagues, consult on the occasional project or learn a new skill.
10. What you will do. Retirement isn't only about quitting your job. It's an opportunity to have complete control over how you spend your time. Make sure you have a few ideas about how you will fill the eight or more hours per day you previously spent working and commuting. Some people miss the sense of purpose and friends that their jobs provided for them, while others finally have the time for hobbies and projects they have been waiting years to tackle.
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I had a friend of mine who refused to retire because he "had too many bills" (an Escalade and a Corvette), despite being eligible at 62 after 30+ years with the federal government (and being under the older more generous CRS retirement system). He contracted stomach cancer and died last March, never enjoying a single day of retirement. Life is short: you do not own the materialism you owe money on, it owns you.
Take the social security, take whatever pensions, forget the extra health plans, and go do something fun until you drop dead. You earned it.
People the bottom line here is wait until your 70+ and dead.
All that money you paid in all these years will go to Congress and
and all the other idiots that manipulate our system for their benefit.
Really?? I got up this morning, looked in the mirror and said to myself.
Damn you really look stupid today. Lets see I wait until I am 70 to retire.
I miss 8 years ..$1,500. a month x 12= 18,000.00 x 8 years. Hell I just screwed myself
out of 144,000 . ,,,,,,,,,,
If you run the numbers, this simply is not true. For example, if you begin collecting at 62 you have 48 months of payments in the bank before 66. (That's 12 payments per year x 4 years= 48 months of payments.) Now factor that total, for example 48 mos. x $1500/mo.= $72,000. Now take the incremental increase (the differential) at 66 yrs old and divide. For example, at an increased $1,750/mo (typical) you get $250 more per month. That requires 282 months further into the future to recoup the loss of waiting. ($72,000 divided by $250) That's 23.5 years! That's the "break even" point for waiting! If you live to be 89.5 yrs old then the wait will start to pay off...but only then. Am I right? It's math. Dirty Harry said it best---"Are you feeling lucky today, grandpa?"
I changed to a non-paying but very exciting and satisfying profession when I was 52 years of age. I did have a substantial amount of savings and my wife was supportive and agreeable, my kids were out of collage and on their own, and while my health had suffered from the stress of my prior job I was still able to recover physically and mentally.
That was 30 years ago. l drew SS when I reached 62 and Medicare at 65 and paid for my wife's medical insurance out of income from investments and SS until she researched 62 and 65..
My income has not kept up with inflation and the purchasing power of current income is about 40% of what it was 30 years ago.
I am a little tight now compared to 30 years ago but my wife and I were able to LIVE and interesting and exciting life while our health allowed it.
I often told my wife that while there were many things in our lives we had no control over, I would have made no changes in those things we did control, She agreed with me and pointed out that there were dozens of thing we did in our last 30 years that she would never have thought we could do and she thanked me for taking the step that allowed her to see many of the things in the world that she had only dreamed of.
I told her I never would have taken the step without her support and encouragement and I told her those things which we did that she so enjoyed and appreciated, were due to her own choice to support and encourage me to take the step to "retire". She passed on last year but I know that together we lived a life we wanted, no regrets.
Ok - wait as long as possible to claim SS?
What if you die between 62 and 70?
What if your employer thinks you are too old to work between 62 and 70?
What about a guaranteed stream of income between 62 and 70?
What about making a place in the workforce for someone younger than 62?
These "experts" analysis is shallow and in a lot of cases idiotic and misleading!
One thing that bothers me is the opinion out there from the younger generations that SS is an entitlement for those of us who have turned of age to collect SS that they are paying for.
I paid into the program for 48 years. Never even thought about it. Now the political football of cutting benefits or raising the age is a popular subject. Calling it a ponzi scheme and it will be broke in the future.
The fact is that the government ( elected officials) has raided SS funds to pay for everything but SS, making it broke. While they have a very generous retirement with health benefits that in most cases gives them full pay retirement after less than a decade of service. They did not pay into SS until a few years ago and were forced to do that to keep their own program from being examined. But when talks of cutting the budget come up there is never any mention by any of our elected officials of cutting their plan for which they contributed nothing and we paid for with our tax dollars.
With that said, I am lucky that I worked hard, saved, invested and gave up things early in my life so that I would not have to rely on SS when I retired.
I would be happy to just have the money I invested in SS returned to me. No interest, no penalties just send me a check and we will call it even.
Retire soon as you can, try to put yourself in this position,remember you only enjoy LIFE once never ever to return 60 to 70 flys by, past 70 lucky to be here.
I agree with 'Lary9's thinking. When we decided to retire at 62 my spouse and I elected to start Social Security payments early. Our rationale being that this was $21,000 a year that could be left in our retirement savings to continue to grow and to recover from the meager growth of the last few years. Not only that, but if we don't use all our savings it will pass to our designated heirs (grown children and our grandchildren). Social Security stops when we die. I'd rather gamble on possibly receiving a few thousand dollars less over the next couple of decades than collect hardly anything at all if we die early. We are hedging that bet with Long Term Care Insurance paid with about 10% of our SS payments. Win/win, in my opinion.
BTW, we made sure that we paid down all debts (house, cars, etc) before we retired so we could be sure we could live comfortably on less. And my spouses job provides health insurance at the same cost as current active employees.
Retirement for those of us nearing that age will not be what we expected. Is it just me or are the "Occupy Wall Street" people in total denial of how it really is in government? It's not just the Republicans who got us in this mess, it's all of them - Democrats included. Our country does not value it's seniors like other countries do. It lets us flounder and give away our money so the younger generation can sit on their asses and complain that they have no jobs, even tho they are so well-educated (or not!). They don't want to work they just want to blame everyone else for the mess we are in! But wow, they can sure use their thumbs to text 24/7! God help all of us.....
I have worked for 34 years so far and saved diligently, 457 K and a retirement. The biggest factor not letting me retire is the Health Coverage. With a wife a few years younger It seems My dreams of early retirement are nil. That IS the biggest concern that was not 15 years ago.
Social Security payments beginning at age 62 are typically 25% lower than if the individual had waited until age 66 to file. Using "Lary9"'s example, an individual filing at age 62 that received a monthly check of $ 1,500.00 would have received $ 2,000.00 if they had waited the additional 4 years. That additional $ 500.00 would then be divided into the $ 72,000.00 already received (48 months x $ 1,500.00), subsequently requiring an additional 14.4 years to "get even" or until after the individual had passed his 80th birthday. These figures do not factor in any COLA (typically around 3%) increases annually but then again, going forward, we don't have any guarantee that Social Security will continue to pay COLA each year any more than we have any guarantees that we are going to live to a certain age.
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