If you’re getting close to retirement the question becomes how prepared are you. Do you understand your 401(k), the ins and outs of Social Security, your pension (assuming you’re lucky enough to have one) and any other little nest eggs that you’re counting on for a comfortable retirement? These are all questions you will need to answer as you begin winding down but it’s important that you make the right choices before punching out.
Following are eight retirement decisions you may have made that you will regret for the rest of your life. Hopefully, you will find that you did not make all or at least most of them.
You plan on working indefinitely
Many Boomers figure on working indefinitely either because they want to, they have to do or they want to maximize their Social Security benefits. The problem here is you can’t count on being able to keep a job if you need it. One recent study found that while 51% of baby boomers expect to keep working some in retirement only 8% of those who have retired reported that they were working in retirement as a source of income. A Transamerica study found that three out of every five retirees stopped working earlier than they had planned and of that percentage 66% did so due to issues related to their employment such as organizational changes at their companies, losing their jobs or due to health related issues.
You’ve delayed saving for retirement
According to a study done by the website Bankrate the biggest financial regret expressed by most Americans is that they did not start saving for retirement early enough. Ajay Kaisth, A certified financial planner in Princeton Junction, New Jersey noted that many people do not start to save aggressively for their retirement until they’re in their 40s or 50s. The good news, again according to Kaisth, is that these people still have enough time to alter their savings plans and achieve their goals but, of course, they will need to take action very quickly and be very disciplined in their savings. Here’s am example of the difference that age makes. If you would like to have $1 million when you retire MorningStar calculated, you would need to save $381 a month if you start at age 25 and would need to earn an annual rate of return of 7%. But if you don’t start until your 45, you would have to save $1920 a month to reach that goal.
You’re taking Social Security early
While you can begin taking your Social Security benefits at age 62, most experts say that you probably shouldn’t. Instead, you should wait until you are 65 which is currently the full retirement age. Of course, this will increase to 67 if you were born after 1959. What’s the difference? As an example let’s suppose you wait until your full retirement age in which case you will get 100% of your benefit amount. In comparison, if you start taking Social Security at age 62 this will reduce your monthly check by 25% for the rest of your life. It gets even better if you can hold off until you’re age 70 because you will then get a 32% boost in benefits or 8% a year for four years.
Following is a short video that explains more about when you should take Social Security with some real numbers that demonstate why it’s better to wait.
You’re borrowing money from your 401(k)
It can be very tempting to borrow from your 401(k) because, after all, that is your money. Plus, there’s no penalty if you pay back the money within five years. But according to John Sweeney, Executive Vice President for retirement and investment strategies at Fidelity investments, this is something you should do only in the event of an emergency. Otherwise, it’s a bad idea. The problem is that it’s likely you will reduce or suspend new contributions to your 401(k) during the period of time you’re repaying the loan. This means you could be shortchanging your retirement account for months or even for years as well as sacrificing matches from your employer.
You’re putting the kids’ needs ahead of your own
Of course, as a loving parent you want to give your children a great education and the best weddings possible. This is not a problem – assuming you can afford it. But if you’re footing the bill for expensive private or out-of-state college educations and lavish weddings at the expense of your retirement savings this will come back to haunt you. What Joe Ready, Executive Vice President of Wells Fargo Institutional Retirement and Trust, counsels is that what you and your children should do is try to find grants, scholarships and student loans and choose schools that are in-state instead of raiding your retirement fund. Another way to save money on your kids’ education is for them to go for two years to a community college and then transfer to a four-year school.
You’re not investing in stocks
Some financial advisors will tell you to stay away from the stock market because it’s too risky. However, if you do this it’s likely you will end up with lower returns. The key to investing in the stock market is diversification. You should have your money in a combination of foreign, domestic, large and small stocks. Most experts today advise investing in exchange-traded funds (index funds) and low-cost mutual funds as they almost always out perform individual stocks.
You want to byua timeshare
Doesn’t the idea of being able to get away to your favorite vacation spot several weeks a year sound darn tempting? Plus, if you get bored with those two or three weeks on the beach you could swap out for slots and other destinations within the same network.
However, if you don’t take into consideration the full financial ramifications of a timeshare you could quickly come to wish you hadn’t made the purchase. You will be charged thousands of dollars upfront, plus there will be maintenance fees that average $660 a year and up, not including special assessments to cover costly renovations. Then, of course, there are the travel costs, which can be high to the popular vacation spots such as the Bahamas, Belize or Hawaii.
In 2015 alone Americans lost more than $760 million in get-rich-quick schemes and other scams. And of the 3 million complaints that were received last year, 37% came from people age 60 and over. What are the signs of a scam? They typically include guarantees of huge profits in a short amount of time without risk. Others require you to wire money or pay some kind of a fee before you can get a prize or there may be unreasonable demands for you to provide bank account or credit card numbers and even your social security number. Also, be wary of any outfit that pressures you to make a fast decision or that discourages you from getting advice from an objective friend or family member. The old axiom is certainly true that if an offer seems too good to be true it probably is too good to be true.