Planning and making decisions about retirement can be quite stressful, especially in the few years before you retire. Should you move and downsize your house? Should you start saving more? The questions that need to be addressed can be very daunting.
The smart folks over at Wise Bread published a great article on 5 financial moves you could make now, that you’ll regret when you retire. Authored by Matt Bell, the article is well-written and offers some very solid advise.
We all make thousands of decisions every day. Come tomorrow, many of them won’t matter much at all. But some decisions do have long-lasting implications. Here are five choices that may leave you longing for a do-over in retirement.
1. Borrowing From Your 401K
It’s relatively easy to borrow from most 401K plans. However, the purpose of your 401K isn’t to save for a down payment on a house or college bills. It’s to build a nest egg for retirement. The more you nibble away at that, the less you’ll have for your later years. The best approach? Consider your workplace retirement funds to be off limits — until retirement.
2. Resetting Your Mortgage Clock Past Your Retirement Age
Interest rates are very low, which has prompted many people to refinance their mortgages. It can be wise to swap out a high interest rate loan for one at a lower rate. However, if this is the home you plan to live in during retirement, make sure your new mortgage will be retired by the time you are. That may mean opting for a shorter term (15 or 20 years instead of 30) or committing to making extra monthly payments. (Use this calculator to help you figure out how much extra to pay.)
3. Claiming Social Security Too Early
There are some people who may benefit by claiming their Social Security benefits at the earliest possible age — 62. If longevity doesn’t run in your family or if you absolutely have no other options but to take the money sooner than later, go ahead. But good things come to those who wait. When it comes to delaying the start of Social Security, those who can hold off will get quite a boost in benefits.
When I looked up my own benefits (here’s where to look up yours), I saw that I’m eligible for $1,780 per month if I claim benefits at age 62. If I wait until my Full Retirement Age of 67, that amount jumps to $2,694 — a 51% increase. And if I wait until age 70, I would receive $3,441 per month — nearly twice as much as my age-62 benefit.
And here’s the other benefit from waiting. Men, I hope I’m not the first to break this to you, but you’re probably going to die before your wife, unless she’s a lot older than you are. And if your Social Security benefit is larger than hers, the more you can maximize yours, the more it’ll benefit your wife once you’re gone. That’s because upon your death, she’ll have the choice of continuing to take her benefit or yours.
Social Security claiming strategies are so varied, complex, and important that it would probably benefit you to seek additional guidance via Social Security Solutions or Maximize My Social Security.
4. Ignoring Inflation
I talked with a newly-retired woman recently who thought she was set for life. She took her savings, divided by her estimated number of years remaining, and was satisfied with her answer. Until I rained on her parade by asking how she planned to account for inflation.
She didn’t like the idea of investing any of her money in the stock market because she thought that was too risky. And yet, keeping all of her money in a bank savings account virtually guarantees that her buying power will steadily decline. Even a modest annual inflation rate of 2% will cut buying power nearly in half over the course of a 30-year retirement.
Most retirees will need to accept the idea of maintaining some level of exposure to the stock market with their investment portfolio in order to make sure their money lasts as long as they do.
5. Counting on Paid Work in Your Later Years
One of today’s most significant retirement-related disconnects is the difference between the number of today’s workers who are planning to work in retirement (I know, it sounds like an oxymoron) and the number of retirees who actually do still work.
An increasing number of people still in the workforce are pushing back their retirement date — some because they want the mental stimulation that comes from work, some because they realize they’ll need the money. And yet, nearly half of people who are now retired left the workforce sooner than intended, many times because of health issues.
By the same token, nearly two-thirds of today’s workers expect to work for pay to some degree after retiring from their main career, whereas less than one-third of those who are now retired have worked for pay since ending their main career.
The best advice? Plan physically, emotionally, and vocationally to work longer than you might prefer while you plan financially to retire earlier than you think you will.
Clearly, what you don’t do as you prepare for a successful retirement is just as important as what you do. Avoiding the five miscues just discussed will help you prepare well.
Wise Bread is a community of bloggers here to help you live large on a small budget. Despite what you may have heard, you don’t have to sacrifice your financial independence to enjoy life.
Readers, if you haven’t taken the time to visit WiseBread, I encourage you to do so — they’re fantastic!
About the article author:
Matt Bell is a published author of four personal finance books, writes for the investment blog SoundMindInvesting.com and the personal finance blog MattAboutMoney.com, and has been quoted in major broadcast, print, and online media. Matt holds a Master’s Degree from DePaul University where he wrote a thesis on the history and impact of our consumer culture.
Read more outstanding articles from Matt Bell and WiseBread.
Here is a fantastic article from Matt Bell that I’m sure you’ll find as insightful as I have: To Go Big, Think Small