Getting to retirement is a tricky and lengthy proposition that takes a lot of planning and forethought. Unfortunately, many people spend more time planning their 2-week vacations than they do planning for a 30-year retirement. It’s easy to make a mistake along the way that you may regret for years. Here are some tips for avoiding some common traps, and making the right choices.
Relocating — Look Before You Leap
In the exuberance of retirement, you may decide to move to another city or state that has always been attractive to you, because it’s warmer, has entertainment and educational opportunities, and is exotic.
Some retirees who have taken the leap have found that living in a new place can be very different from visiting as a tourist. Once you have lived somewhere for a few months or years, you may find that the pace is too slow or too fast. You may miss your friends and neighbors. Even playing golf daily, or taking long walks on the beach may have sounded terrific in a brochure, but can get old over time.
If you decide to retire in another country, it can become even more complex, when learning a new language, new currency, new tax laws and customs can become overwhelming. Remember that when you’re a senior, familiar and comfortable surroundings can make life easier, and dramatic change often becomes more difficult. Consider leasing or renting before you buy.
Falling for Scams
The offers can sound very tempting — guaranteed, spectacular returns in a year without risk. The old adage still holds true — “If it sounds too good to be true, it probably is.” The Federal Trade Commission reports that in 2015, Americans lost $765 million in get-rich-quick schemes. Thirty-seven percent of the victims were age 60 and over.
Look for these warning signs:
* Requirement to wire money or pay a fee before you can receive a prize.
* Demands for personal and sensitive financial information, like your bank account, credit card information, or Social Security number.
* Pressure to make an immediate decision.
* Discouragement about getting advice from an impartial professional advisor.
Planning to Work Indefinitely
Many Baby Boomers intend to work until age 70. This may be because they are still recovering from the Great Recession of 2008 and 2009. It may be because they got to 65 before they knew it, and didn’t save enough during their working years.
The disturbing reality, according to a Willis Towers Watson survey, is that only 6% of retirees actually report working in retirement as a source of income. Good intentions are often dashed by circumstances beyond our control — organizational changes at our company, downsizing, or purchase by another company.
One of the biggest factors causing us to stop working before we would like to is health issues. According to a Transamerica survey, 37% of those who retired early did so because of their own declining health, or that of a loved one.
Consequently, it makes sense to hope for the best, but plan for the worst. Many people like to work because of the income, the paid benefits, and the camaraderie. Work as long as you can, but don’t neglect to contribute diligently to an employer-sponsored plan, like a 401(k) or 403(b), or to your own Individual Retirement Account.
Putting Your Children First
It’s common in our community and culture to make great sacrifices for the sake of our children. It’s an admirable choice, but it’s often not a sound one from a financial point of view. For example, many parents tap into their 401(k)s or IRAs to pay for college for their children. However, there are many ways to pay for college, including scholarships, grants, student loans, and work-study. There’s a common saying among financial planners, “You can get a loan for a college education, but no one will loan you money for retirement.”
If you raid your retirement nest egg to pay for your child’s college, you’re likely to reduce or suspend current contributions while you’re repaying the loan. You may also miss out on any employer matching, and on the tax-deferred growth of your contributions. It’s a tough decision, but it may be better to opt for less expensive in-state schools, or to take two years at a community college before transferring to a four-year college. If you’re not prudent now, you may end up depending on your children later on.