RETIREMENT IS LIFE’S most daunting financial puzzle, not least because many of the decisions we make are difficult or impossible to reverse. To make matters worse, we’re often making decisions we’ve never made before, so we have no real expertise.
What sort of decisions am I talking about? Here are 10 examples.
1. When should I quit work? Needless to say, this is the most important retirement decision. Once you quit the workforce, you not only give up your paycheck, but also your ability to save comes to an end and, indeed, goes into reverse, as you start to draw down your nest egg. Still, there’s always the possibility of working part-time in retirement—something I favor, not just because it brings in a little money, but also because it can provide retirees with a sense of purpose.
2. Should I buy long-term-care insurance? If you purchase traditional long-term-care insurance, you’ll soon find yourself emotionally and financially bound to the policy by the premiums you’ve already paid. Even if the insurer later jacks up those premiums to unaffordable levels, you’ll be loath to drop coverage because of your sunk cost. Hybrid policies exact less of a financial toll if you later have second thoughts and decide to drop coverage, though even these policies can involve a hefty opportunity cost, on top of any actual financial loss that you suffer.
3. Should I downsize? As anybody who has ever sold a home can attest, it’s an expensive process, one you want to do as infrequently as possible. Saying goodbye to your single-family home and moving to an apartment, perhaps in a 55-plus community? That can be a smart move—but your new home may come with a raft of rules that can grate on those who aren’t used to dealing with seemingly petty regulations. Not happy with your new place? Your second thoughts could come with a hefty price tag.
4. Should I move elsewhere? It’s one thing to move to a smaller home. It’s another to move across the country, perhaps to a place with better weather and lower taxes. But what if the balmy weather proves scant compensation for the friends you left behind? Moving back would be costly, and perhaps impossible if you’ve already spent a chunk of the proceeds from selling your previous, more expensive home.
5. Should I move into a continuing care retirement community? These communities—which typically offer independent living, assisted living and skilled nursing all within the same campus setting—often involve a hefty upfront fee. Yes, that fee may be partly or entirely refundable upon death or if you move out after just a few years. Still, if you sign up for a CCRC, it’ll likely be the last big financial decision you’ll ever make, and picking the wrong community would be a costly error.
6. When should I claim Social Security? Among retirement choices, this ranks second in importance, surpassed only by the crucial decision of when to quit the workforce. Many folks claim Social Security early, but that’s often a mistake.
Have regrets? You have two options. First, if you claimed in the past 12 months, you can withdraw your request for benefits and repay the money you received. Second, once you reach your full Social Security retirement age of 66 or 67, you can suspend your benefit and thereafter accrue delayed retirement credits, which will boost your benefit once you restart your monthly check.
7. Should I take monthly pension payments or the lump sum? Among those lucky enough to qualify for a pension, many take the money as a lump sum rather than as regular monthly pension payments. But whichever you choose, there’s no going back. True, those who opt for the lump sum could later buy an immediate fixed annuity and thereby create their own monthly pension. But the monthly payments from the annuity may not be as generous as the monthly payments retirees could have received from their old employer’s plan.
8. Should I annuitize part of my retirement nest egg? I believe immediate fixed annuities are a great way to turn retirement savings into an income stream you can’t outlive, but they remain a profoundly unpopular product. That’s a shame, but I can understand why. If you opt to annuitize, say, $100,000 of your retirement savings, it’s a big, irreversible decision—one that would sting if you got a grim medical diagnosis, say, a few months later.
9. Should I take out a reverse mortgage? Just because you sign up for a reverse mortgage doesn’t mean you have to borrow against your home’s equity. Indeed, some experts advocate setting up a reverse mortgage as a financial backup, in case you start to deplete your other retirement assets or a market swoon means it’s a bad time to tap your portfolio. Still, setting up a reverse mortgage involves hefty upfront fees—a deterrent to pulling the trigger. To see how much you might pay in fees, try this calculator.
10. Should I give away money now or upon death? Whether you’re looking to help family or your favorite charities, giving away money now has a lot to recommend it. You get the pleasure of enjoying the recipients’ gratitude, you shrink your wealth for purposes of federal and state estate taxes, and today’s charitable gifts may also trim your current income-tax bill. The downside: Once the money is given away, it is indeed gone, which could be a financial disaster if you later find your retirement nest egg is shrinking far faster than you anticipated.
When faced with the 10 questions above, the temptation is to opt for the answer that’ll minimize our potential financial loss in the short-term, and thus also minimize the chances that we’ll be racked by regret. But there’s a downside to making the emotionally safe choice. The problem: In some cases, the path that promises least short-term regret—by, say, claiming Social Security right away, taking the pension lump sum and avoiding immediate annuities—could end up hurting us financially over the long haul.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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Wonderful list! I wish I had this in front of me when I was pondering retirement.
My anology of retirement is that it is like “cutting a diamond.” A once in a lifetime decision which is exceedingly difficult to undo,
Great list. I used to dread all these decisions. Looking back over the last 5 years, most have been made, and it wasn´t so bad. The hardest would have been when to retire, but that was decided by a corporate layoff at 61. I realized then that I was secure financially. I always knew I couldn´t stay in HCOL nyc without my job, so I sold my apartment and moved to Mexico. The low cost of living here, including housing, makes most of the other decisions not too high-stakes or even irrelevant (no LTCi or CCR communities here). All I really have left to deal with is #10.
I considered living in Mexico before I got married. I hope to spend some winters in Mazatlan when I retire. Seems like your happy with your move, congratulations!
I understand the Long Term Care Insurance companies dilemma. I’d have the same problem if I was running the company. My concern is adverse selection (retention). Those who think they are healthy enough might bail out leaving a pool of people who will require payments in the future. That’s a self-fulfilling prophecy for failure. I wish I had a solution.
I’d suggest HDBlog’s administration is equal to those you used to write for with primary economic focuses. Publications like WSJ, Journal, Forbes, plus the books. You’re now unencumbered, by anything, with many grateful for your words. As you mentioned theres no going back, and you’ve learned enormously.
Recognizing and examining the last few innings, I must agree having met with and consulted many medical professionals. I see a large % approaching retirement trepidatiously, and many planning the same as johny’s dad, in the end. Hospitals are businesses also.
Many have seen this happen, as have I, injured elders or family. Interned approaching 100. With little lust for harvest time, hoping to control their own demise. I hope to do the same. One wise individual said “enjoy market returns as long as able”, then annuitize a remaining sum amongst those too big to fail both diversely and wisely.
60 is the new 40, your young! I heard you like bicycling. A friend recently went down last year on a cycle, changing from tar to sand at 76. He’s back together and working PT. Every business first few years moves ahead wearily passionate. I’ve been involved in a few businesses, and one revenue surpassed the others markedly.
Wise words, as usual, Jonathan. Thank you!
What’s important to learn is that there are no risk free options. You are only trading off different risks. No need to despair from the need to analyze and choose, but you avoid regrets if you make the best decision you can at the time when a decision is needed.
Another tangential difficult, nearly irreversible daunting, financial decision for many making decisions around this time: traditional vs Advantage Medicare plan
MA is a slippery slope. Let’s just say all is not as the advertising makes it appear. Think of all the promises they make including such things as Part B premium reimbursement, debit cards for groceries and utility bills, dental, even transportation and then think- how can they do it?
Three possibilities or combination thereof. Limited provider networks, enhanced management of health care and/or excessive subsidy payments by CMS – which many in government believe to be the case and many want to correct.
Richard, this is what I think too, having just finished a deep research dive into the various plans (I turn 65 in a few months). Plan G – high deductible + Part D is a far better option than an advantage plan. Its maximum, out-of-pocket annual expenses are half or less than an advantage plan’s, yet the premiums are comparable. For someone in good health, looking for asset protection, easy access to heath providers, and fewer billing issues, a supplemental/Medigap high deductible plan seems the way to go.
I also met with a local SHIP counselor (https://www.shiphelp.org/about-medicare/regional-ship-location) to verify my findings. I was pleased to learn that both he and his wife have supplemental plans and that the office he works out of rarely if ever assists with billing issues related to supplemental coverage.
That’s a great addition to the list. Now, I’m kicking myself for not including it!
Can I add another?
it would be number 11: Shall I die on my own terms or prolong my life as much as I can?
A while ago I read about a doctor who said after 75 he will be refusing certain medical treatments to prolong his life. I thought it was an interesting point of view that made sense in some ways, but not something i would pursue.
Recently my father opted for assisted suicide, flew to Europe and ended his life.
You can’t just sign up for this; there is a process by which your medical records are reviewed and interviews held.
He was nearing 90. His heart was broken (literally) and the risk of stroke was high. For sure he was slowing down, but his mind was sharp was able to go about doing things on his own.
In my opinion he could have lived another 10 years, albeit at a lower quality of life.
With this decision, he did away with all the baggage that comes with long term debilitating illnesses and care.
So did he do the right thing? I believe he did and one day I hope to have the courage to do the same.
Glad to hear he was able to do that. It is certainly my hope that I will be able to follow his example in certain circumstances. Amy Bloom wrote a useful book, “In Love”, about her husband’s journey to Dignitas. Katie Englehart’s “The Inevitable” investigates several options along the same lines.
Great list! A few points:
#2. My employer started offering group LTCi when I was mid-40s. I didn’t bite, and have saved 30+ years of premiums. I consider my upcoming move to a CCRC an alternative to LTCi, and I will start getting a return on my money the day I move in.
#3. For me, yes. I moved to an apartment last year, pending the final move to a CCRC, partly to get the downsizing out of the way before I got any more decrepit and partly because I was so tired of the maintenance. My house was 33 years old, and there always seemed to be something that needed fixing, not to mention a couple of major items I was deferring. It has been a huge relief.
#8. I have been reluctant to annuitize because of the unpredictable effect of possible inflation. Which is now actual.
How much payment upfront and monthly?
Sorry, I don’t choose to disclose that. But since I live in central NC I’m sure it’s a good bit less than a comparable facility in NJ.
If it’s less than $700,000 to $900,000 with 90% refundable, but no interest and then $7,000 per month, you are correct.
Considerably less.
Regarding the Reverse Mortgage (HECM) I highly encourage folks to get read Dr. Wade Pfau’s Reverse Mortgages. They are no longer the “late-night TV ad” financial schemes. There are so many benefits now that everyone should at least consider them in their financial planning. In our situation with a highly appreciated home without a mortgage, it became our safety valve. In retirement where cashflow and sequence of return risk are everything it just made sense to have this to fall back on.
https://www.amazon.com/Reverse-Mortgages-Secure-Retirement-Researcher/dp/194564012X/ref=sr_1_1?crid=CL9V9LDBZP6A&keywords=reverse+mortgages+wade+pfau&qid=1679146999&sprefix=reverse+mortgages%2C+P%2Caps%2C83&sr=8-1
This list was reassuring to me in that we’ve made many of these decisions already:
#2: We got long-term care policies nearly 20 years ago when we were both working for the state of California and had access to good group options. We also got them for both of our moms through our group plan, which is really a good thing now that my MIL has Alzheimer’s.
#3: We sold our family home and downsized to a condo in 2019. Yes, there have been adjustments from single-family to multi-family living, but overall, we’re happy with the decision.
#7: My husband took the pension (with survivor benefit) when he retired from the state (he now works in the private sector), and I will also take the pension with survivor benefit when I retire from the university.
We’d been struggling with the when (#1) and the where (#4) and have just recently agreed that both decisions are snapping into place: Unless some health crisis forces us to retire earlier, we’ll both finish up in summer 2025, the year we turn 65. And we’re staying in the college town where we’ve lived since our early 30s. This is our place.
Decisions still pending: There is a nice CCRC in our town that we will seriously consider (#5), but we think that’s premature for us. Our condo community is not a 55+ community, but many of our neighbors seem to have chosen it as a place to live out their 60s and 70s (and beyond, in some cases). We’re in our early 60s and thankfully fit and healthy at the moment. Unless something changes drastically in the next few years, we’ll probably start considering this more seriously when we hit 70. As for Social Security, at least one of us will wait until 70, but having the other claim at FRA (67) is on the table if we feel we need a bridge between 65-70.
You might want to check the length of the wait list at that CCRC. No, you don’t want to move there in your mid-60s, but you might want to in your mid-70s, and there is a ten-plus year wait for a two-bedroom at some in my area. Once you reach the head of the list, you can usually stay there if you’re not ready to move.
Thanks. I probably will look into that sooner because I’m just wired that way. I looked up the article you mentioned in a comment below and also googled the typical age at which people move into CCRCs (it ranges from 75-84 and the average age ranges from 80-84). So that comported with my sense that 65 or 70 is too soon but I do need to know about the waiting list. Of course, the tricky part is that you have to be fit for independent living when you move in, and no one knows when THAT clock will expire for them.
Thank you as always Jonathan. I would love some personal advice from the esteemed readers of this blog about the “ when to retire” question, especially from any doctors or lawyers out there. I’m a nearly 72 year old physician and it has truly been my calling. I love taking care of patients. But my specialty involves standing for 5 hours and doing physical procedures. The eyes and brain are good but old Arthur is getting the back, feet and hands. The question is this: how does one find meaning and purpose in retirement to replace such a fulfilling career?
I worked for a medical school for 37 years before retiring in 2015. The school is always looking for professional and lay volunteers to serve on the Institutional Review Board, co-lead discussion group classes and patient simulations for med students, and so forth. I would recommend not completely cutting ties to your employer if possible.
How fortunate for your patients to have a physician so dedicated to his/her profession and who loves caring for them! I would imagine that if you retire, you would have much wisdom and experience to offer to a new generation of health care professionals. Have you looked into any teaching/mentoring programs you could join (or start one)? Or you could become a business coach for the medical profession, guiding in the process of setting up or managing a practice. Thank you for your profession, and best wishes for the future.
This is a great concise list! I prefer hand-wringing to making big decisions. Indeed I had to put my coffee cup down so I could use both hands to read through the article 😂. I’ve got several decisions checked off already, but to handle future uncertainty, I’m trying to set up options, rather than deciding now. For example, I live in PA and my kids/grandkids are in the Carolinas, a 10 hr drive. I own a small condo there, and visit frequently. But I recently gave a refundable deposit to get on the Future Residency (waiting) list at a CCRC near my kids. So if the time comes to move south, I will have choices. For longevity risk, I just can’t bring myself to purchase long term care insurance, with uncertain premiums going forward for care I might not need. So instead I’m setting up a QLAC now, for payout of $1100/month for life beginning at age 75, to supplement my income and defray some assisted living/nursing costs if needed. I’m curious to hear from the community…what are your thoughts about this approach?
Great list, right on. Let me count the ways.
1 More than about money too. Big emotional decision. When you are ready you’ll know it.
2 I am hooked even with huge premium increases and it’s not even large benefits. Had the policy for 30 years, what to do?
3 Been there done that. 4-1/2 years in and still like our decision even with rules. However, you don’t escape all home issues, $300 for water heater repair last week, AC repairs a few times – may need replacement. Plus the HOA fee goes up each year along with taxes.
4 It’s all about family. Where are they, where will you be?
5 Cousins just did it, say they love it, but unless you have a health reason for long term planning, eh. Toured one once and found it a bit depressing.
6 When you need the money most.
7 Never a lump sum‼️
8 No pension? Annuitize a portion, you’ll sleep better.
9 See # 3
10 Starting in dribs and drabs, but we are near and in 80s and live on a pension. Taking from income assets is more serious IMO.
You keep posting that you don’t care for CCRCs, but you appear to only have visited one, once. I didn’t care for the first one I visited, either, nor the third. But there is great variety – in the financial structure, the way they are run, the facilities on offer, the “vibe”, how welcoming the existing residents are, etc. I don’t understand why you persist in dissing the whole idea on the basis of a single visit.
Not dissing anything. I just see collecting a group of seniors many of whom are ill physically or mentally in a group as depressing. It’s bad enough to see EMT calls in our 55+ condo community, a CCRC would be worse. Basically I don’t see what amounts to isolating seniors as my cup of tea that’s all. If you find such living as attractive even when not necessary, that fine.
We will be moving to a CCRC that is on the campus of the State University of New York (SUNY) at Purchase College. It is one of a growing number of college-affiliated CCRNs that are designed to ameliorate the isolation that concerns you by promoting intergenerational learning. SUNY Purchase is the fine arts college in the SUNY system which means that we will have access to a very nice museum and a performing arts center that is able to attract groups that also perform in nearby NYC.
The SUNY Purchase campus is lovely — and the Neuberger Museum is a definite plus.
No reason it would be any more isolating than your 55+ community. My choice is right down town, involves locals, including kids, in activities, and provides transport to concerts and classes. I agree that it can be a bit of a shock initially to see so many old people, but that’s because this country has such a cult of youth. I’m female, and I became invisible around age 50.
I helped my widowed father in law manage his financial affairs and back in 2010/2011, after careful consideration, we decided to use $100,000 of his savings and buy an immediate life annuity with full refund. He was 90 years old at the time. We did this because his local savings and loan was paying about 1/2 of 1% interest on his CDs generating about $500 per year on $100,000. His annuity paid $1,070 per month or $12,840 per year. He recently passed away at age 104. He had been in assisted living and his last full month, the monthly cost was $6,000 per month. Social Security and his annuity was generating $3,070 per month. I calculate his remaining savings would have lasted another 55 months. Because of the annuity, he outlived his savings.
Did you mean: Because of the annuity, he did not outlive his savings?
Jonathan Clements for president, 2024.
That would be a cruel fate — but one I couldn’t possibly suffer. I wasn’t born in the U.S.
Maybe we can get a constitutional amendment passed for you.
alas! if Jonathan Clements became president, he will be cheap one.
he might also invest social security’s pool of money 80/20 stock/bond and trigger heart attacks in seniors during times of market volatility.
being English, he might socialize medicine, pissing of wealthy docs and private equity owners of emergency rooms, but bringing tears of happiness to the masses.