With thousands of baby boomers retiring every day, those who are still working are shifting their mindset from worrying about their careers to figuring out how they are going to fund their retirements.
Are you financially ready to retire? Do you have a full understanding of your financial situation, the value of your retirement accounts, pension and any other accounts in your nest egg? Have you educated yourself about Social Security, health and long term care insurance?
These are some of the questions you will have to ponder as you get closer to retiring. To help you out, Kiplinger’s has compiled a list of retirement decisions you may regret forever in “10 Financial Decisions You Will Regret in Retirement.” We’ll look at a few, to see if they sound familiar.
Putting Off Saving for Retirement. Bankrate found in its survey that the single biggest financial regret of Americans was waiting too long to begin saving for retirement. Many folks don’t start to really buckle down and really save for retirement until they reach their 40s or 50s. For those who waited, you may still have enough time to change your savings behavior and reach financial goals. Start saving now!
Claiming Social Security Early. You can take Social Security retirement benefits at 62, but you probably should wait at least until your full retirement age, which right now is 66 and moving up to 67 for those born after 1959. If you can delay until 70, all the better. If you claim at 62, rather than your full retirement age of 66 in this example, your monthly check will be reduced by 25% for the rest of your life. If you wait until age 70, you’ll receive a 32% boost in benefits. That’s 8% a year for four years because of delayed retirement credits.
Borrowing from Your 401(k). Taking a loan from your 401(k) retirement-savings account seems like a nice solution to cash flow problems. Provided that your plan sponsor permits borrowing, you usually have five years to pay it back with interest. However, aside from a crisis, it’s a bad idea to tap your 401(k). You’re likely to reduce or suspend new contributions during the repayment period, so you’ll be short-changing your retirement account and missing out on employer matches. You’re also not getting the investment growth from the missed contributions and the cash that you borrowed. One last thing: you’ll be paying the interest on that 401(k) loan with after-tax dollars—then paying taxes on those funds again in retirement. Another last thought: if you leave your job, the loan usually has to be paid back within 60 days. If not, it’s considered a distribution and taxed as income.
Deep Pocket Parents. If you’ve always been the one to step up and pay for big expenses for your children, you may be robbing yourself and your spouse of a comfortable retirement. Pricey tuition at a private college, paying for an elaborate wedding or credit card bills for irresponsible adult children is a choice that fouls up more retirements than you can imagine. Bottom line: you can’t borrow for retirement. If you are even considering tapping your 401(k) plan to help your kids, think again. Avoid going broke during your golden years by giving up the role of the great provider.
Reference: Kiplinger’s (October 2016) “10 Financial Decisions You Will Regret in Retirement”