11/19/2012 8:15 PM ET|
7 moves new retirees will regret
The transition from the world of work involves some details you may not have fully considered. Don't let these possible missteps derail your plans.
It can be difficult to know when you are truly ready to retire. Even if you are relatively certain you have enough savings to last the rest of your life, there is still plenty that could go wrong. Here are some potential mistakes to avoid as you transition into retirement:
Moving to a place where you don't know anyone. Once you're no longer tied to a job, it's tempting to move to a location with better weather or more fun things to do. In some cases, you can even significantly reduce your retirement expenses by moving to a place with more affordable housing and a lower cost of living. But moving away from your friends and family and your support system of associates, including everything from a great dentist to a car mechanic you can trust, can be detrimental to your retirement. It's difficult to start from scratch and it can take years to build a network of people who can help when you need it.
Quitting before you are vested in your retirement plan. You may not get to keep all of your employer's 401k contributions, exercise stock options or qualify for traditional pension payouts until you are fully vested in the retirement plan. Before you turn in your letter of resignation, look up the exact date you will become fully vested in the plan. If it's a matter of weeks or months, sticking around until you qualify for more lucrative benefits could significantly improve your retirement finances. "If you are close to an anniversary date or if you have any stock options that are about to vest, you don't want to leave right before you are about to vest and lose out on money," says Laura Barnett Lion, a certified financial planner and the president of Barnett Financial in Austin, Texas.
Retiring before you set up health insurance. Medicare coverage begins when you turn 65. If you want to retire before then, you'll need to find alternative health insurance coverage. Some employers offer retiree health insurance plans to former employees. If your company had at least 20 employees, you can also buy back into your former employer's group health insurance plan using COBRA continuation coverage, typically for up to 18 months. Other health insurance options for early retirees include joining a spouse's health plan, purchasing individual insurance or seeing if you qualify for state insurance pools. Some organizations you belong to or part-time jobs may also provide health insurance. "If you are younger than 65 and you are retiring from a company plan, you want to pay special attention if you have any health issues," says Christopher Rhim, a certified financial planner for Green View Advisors in Washington, D.C. and Norwich, Vt. "Know what your benefits are and compare this to any new plan under consideration." Beginning in 2014, young retirees will be able to purchase health insurance through insurance exchanges, with tax credits for those with low and moderate incomes.
Thinking your health will hold out forever. Many new retirees are healthy and energetic, but it's important that they plan for a day when they may not be. Proximity to medical care becomes increasingly important as you age. You also need to think about the possibility that you might require long-term care or extra household help from caregivers or family members. It's a good idea to put your medical requests in writing and to designate someone to make medical decisions for you if you cannot.
Taking Social Security too soon. You can sign up for Social Security beginning at age 62, but that doesn't necessarily mean you should. If you elect to begin receiving payments at 62, you will receive lower monthly payments than you would if you waited. "If you are retiring before your full retirement age, which is 66 for most baby boomers, and you are planning on taking Social Security before 66 at a discount, that can have a substantial negative impact on your retirement finances," says Terry Seaton, a certified financial planner for Seaton Financial Advisors in St. Augustine, Fla. "You can wait even after 66 up to 70, and it increases each year." Monthly Social Security payouts grow for each month you delay claiming up until age 70.
Forgetting to take required minimum distributions. Withdrawals from 401k's and traditional individual retirement accounts become required at age 70 1/2. People who fail to withdraw the correct amount face a 50% tax penalty in addition to the regular income tax due on the amount that should have been withdrawn.
Spending too much on travel and new hobbies. Some expenses will decrease in retirement, such as commuting costs and workplace attire. But new costs may take their place or even surpass them. Travel can become a huge new retirement expense, and some new hobbies might also come with significant costs. Some retirees end up spending more on entertainment simply because they have more time for it. You may find yourself dining out more to get out of the house or connect with other people. "When you have time on your hands, most people are fairly creative in finding ways to spend money. They play more golf and they go see the grandkids more often," says Seaton. "Find out how you want to spend your time in retirement, and find out what it's going to cost you."
More from U.S. News & World Report:
- 7 ways to retire with $1 million
- 12 ways to increase your Social Security payments
- 6 ways the 'fiscal cliff' could affect seniors
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Good article. For me, I am hoping to work until I'm at least 70 because I cannot afford to retire, and then taking the maximum for SS. This economy has given me no other choice. Ugh!
Nobody endowed with a medium inteligence would rely solely on SS to enjoy retirement years. The maximum amount a person can collect from SS today is less than $3,000 monthly. I am a retiree who worked for 35 years for a Multinational company. Our Pension fund was/is private. All employees gladly contributed to the fund with 10% of their salaries. Our pension fund was/is also managed by ourselves, therefore there was/is no big brokerage companies involved to especulate with our retirement savings and still charge us big fees for the service. Every year we all received financial statements showing the general health of the plan as well as individual statements showing each worker stake in the fund. All workers, who are fully vested in the plan, retire with 80% of their last salary. The reason I am telling you this is to make you think that may be SS is in fact a ponzi scheme, as previously said by Gov. of Texas, Rick Perry. How is it possible that individuals are forced to contribute to a fund for 30, 40 or 50 years without ever have received a financial statement from the administrators of the fund,? On top of everything, there is not one year that goes by that workers are not anxious about politicians playing games with their SS, either as scary tactics and/or with political games for personal gains.
I am a very happy financially independent retiree. I will not give you any advice, I will tell you what I did. I saved as much as possible when I was working without depriving myself and my family of anything necessary to have a confortable and healthy life. I invested in almost everything that I thought would give a higher return for my savings ( Contribute to IRA, bought rental properties learned how to safely invest in the stock market etc). I retired only after my child finished graduate school and I paid all my debts. Although I am entitled to SS due to marriage, I have not intention to apply for it. I am too happy to bother.
If you move from your familiar location and are worried about making new friends take up bridge. We have moved five times since retirement and have met the most interesting people playing bridge, doctors, writers, lawyers and one of the most interesting was the wife of a famous Judge from one of the most well known of the Circuit Judicial court of appeals.
Use good common sense on what money you have and be careful how you spend it.
Have a pet, they get you out exercising and keep you active. Caution, they can be expensive.
The 53% should take Social Security as soon as possible as it will almost certainly be means tested before you reach age 66 or 70. Higher income retirees will not get some or all of the promised SS benefit in the future; so waiting in hopes of a higher future benefit is foolhardy.
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If you worry about money after the streetlights come on, these actions may help you rest easier.