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IF YOU THINK IT’S irritating to debate an issue with folks who have already made up their mind, there’s one situation that’s even worse: debating an issue with those who have not only made up their mind, but also gone ahead and acted on their decision—especially if that decision is irreversible.
And, yes, many retirement decisions are irreversible.
Take issues such as when to claim Social Security, whether to take pension payments or a lump sum, whether to buy an income annuity, whether to opt for traditional Medicare or Medicare Advantage, and what age to retire at. Those who have already acted on their choice may be unable to reverse course or reversing might be awfully difficult—and that means these folks tend to be fully committed to their choice, both financially and emotionally. Consider six decisions:
1. Social Security. After you claim benefits, there are two potential chances to change your mind if you later decide you chose wrong. First, in the first 12 months, you can cancel benefits and repay what you’ve already received. Second, you can suspend benefits once you reach your full Social Security retirement age of 66 or 67, and thereafter collect delayed retirement credits until you restart benefits.
But I can’t recall hearing of anybody in recent years who’s used either option. Most folks, once they claim benefits, stick with their decision. Talking to folks who argue vociferously that everybody should claim benefits early? More likely than not, you’ll discover that’s what they did. It might have been the right choice for them. It almost certainly isn’t the right decision for many and perhaps most retirees.
2. Pensions. Got a choice between regular monthly pension payments and a lump sum? If you take the payments, it’s game over. If you take the lump sum, you can always opt to buy an income annuity later—though it doesn’t seem like that happens very often and, if folks do so, they may find the commercial annuity that they buy pays notably less income than the pension payments that their old employer was offering.
3. Income annuities. This is similar to opting for pension payments: It’s a decision that can’t be reversed, and I think that’s one reason immediate-fixed annuities aren’t popular. Still, unlike opting for the pension rather than the lump sum, the stakes are lower for those who buy income annuities.
How so? You could opt to make incremental annuity purchases over time. That’s what I plan to do, which will also give me the chance to buy my immediate-fixed annuities from multiple insurers, thus diversifying the risk that any one insurer gets into financial trouble. My goal: Between my Social Security and my immediate-fixed annuity payments, I want enough income to cover at least my fixed living costs, freeing me up to invest my portfolio largely or entirely in stocks.
4. Medicare. If you opt for a Medicare Advantage plan rather than traditional Medicare, you could later swap into traditional Medicare. The problem is, at that juncture, you may struggle to get the Medigap plan you want at a reasonable price, because you’ll likely have to go through medical underwriting. This could obviously be a problem, though it’s hard to gauge how big a problem it is. Some folks, at least, do manage to do it.
5. Reverse mortgages. Just because you set up a reverse mortgage doesn’t mean you have to start drawing on the money available to you. Indeed, some experts argue that retirees should set up a reverse mortgage as a financial backstop, and then leave the reverse mortgage’s credit line to grow. Even then, a reverse mortgage will involve hefty upfront costs, so—like opting for monthly pension payments or buying an income annuity—this feels like a big, irreversible decision, one that tends to prompt heated arguments.
6. Retiring. Now, we come to the biggest decision of all: retiring from your full-time job. Yes, many folks go on to work part-time. But such positions, while they may pay a handsome hourly rate, usually won’t generate the same amount of income and they typically don’t come with benefits.
If you later change your mind, could you get back your old full-time job? Probably not—which, I suspect, is why so many folks will argue that they retired at the right time. After all, it would be hard for most people to admit they made a mistake when it comes to such a big decision. It’s much easier to persuade ourselves that we made the correct choice.
To make matters worse, not only are the above decisions often irreversible, but also the financial stakes are huge. An additional problem: We often only get to make these decisions once, so we have scant chance to develop any real expertise, and it’s hardly surprising that folks make mistakes.
The bottom line: When you talk to friends and family members about these issues, always ask what they opted to do. If they’ve already acted, they’re likely heavily invested in their own decision and loath to admit any other choice would have been better. What if they allow that perhaps they made a mistake? Now, it’s worth listening—because you’re talking to folks who are thoughtful enough to critique themselves.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.
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Zero regrets. If anything, maybe should have retired 1-2 years earlier, but I did what was best for the long running instead.
Another great article JC.
These are all critical decisions indeed, but there is definitely no ‘one size fits all’ paradigm.
Over the years I have followed most of the bogleheads and humble dollar tenets religiously – but not all, including some of the decisions listed here, where I might be considered guilty of heresy – but always through careful consideration of personal circumstances, and it has worked out better than imagined.
In my case I worked at an early age through graduate school, in a relatively high-income field, stateside and overseas (where major expenses were covered and taxes grossed up), lived simply, saved practically everything, maxed out the 401K, received the match, and invested the rest in index funds as well as in real estate. Without knowing any better I was probably an early adherent to the FIRE movement, long, long before it became fashionable – and unfashionable – as I ended up quitting the work force at age 40 two decades ago.
This was due to a combination of both job burnout and a desire to shorten the distance in an overseas long-distance relationship. I sold all the stateside real estate and physical possessions – except the financial investments – and moved to a lower-cost country in Latin America, where I live to this day just over two decades later. During this time I have lived modestly but comfortably, confining most travel to exploring my and nearby countries in the region. Absolutely key was the relatively low cost of local health care (of acceptable quality). This year, at age 62, I claimed Social Security, and while certainly modest by site standards, it is more than enough to fund now overseas travel and leisure, with investment income continuing to cover fixed expenses. After a two-decade hiatus in seeing such regular payments (aside from fixed income coupons) it feels almost like a second retirement.
As Jonathan has far more eloquently stated here, two of the most important elements to making it financially are saving prodigiously and living within one’s means. So hopefully I will not be considered here a total heretic and banished from the forum (LOL).
A second quick comment, on that important retirement decision. The decision to retire for a self-employed individual is a lot different than the retirement decision for an employee of a firm, especially a long-term employee. The self-employed person doesn’t have the benefits and perqs some corporate employees have that can delay their decision to retire.
While I’ve always been a strong advocate for working as long as you can (as long as you like what you do, and sometimes even when you don’t), I decided to retire (just before 70) when, one day, I woke up and my brain just told me “it is time”. I was one of those self-employed people who had enough money to retire and I had been able to ratchet down my work to keep the fun stuff and avoid the drudgery. But even the fun stuff wasn’t enough to keep me forever, and I knew from day one that internal alarm clock went off right on time.
This is a great list of irreversible decisions that need careful thought. Very timely article since I am helping my son-in-law and stepson with their retirement options.
At age 60, I decided to ladder two deferred income annuities (different companies), one paying at age 75 and the other at age 80. There is flexibility on the start dates, i.e., I can delay the start and the income goes up for each year delayed (up to age 85). The idea behind the annuities was peace of mind, help cover inflation, and help pay for additional home services as we aged (so we don’t burden our kids/grandkids so much). Was this a good decision? For our situation it seemed to fit – the investment was a small % of our portfolio, we didn’t need immediate income since I was working, and it reduced my nighttime worrywart tendencies.
I was going to retire at age 67, but then Covid hit, and my company required us to work from home. Best transition to retirement ever! I continued to work from home for 3 years and retired at age 70. Circumstances decided for me.
To mitigate sequence of returns risk, we waited until age 70 to collect SS. That plus a small pension and a dividend portfolio keep us from tapping our Roth account or Trad IRA account until age 73.
Thank you for another thought-provoking article!
The decision to seek Social Security benefits before normal retirement age, in comparison with seeking them four or more years later, is a significant one, to be sure. However, the decision to seek Social Security benefits at, say 68 instead of 70, is nowhere near as significant.
Doing even that may not be the wisest decision, especially if you have cash available to you to use instead, but I can see scenarios where taking Social Security one or two years earlier than you might otherwise elect would make financial sense.
If you have investments (or cash to invest) that you would have had to dip into for those extra years, and you think you are in a rising market, you can make back in the stock market much more than what you might be giving up in Social Security for those years. Also, the after-tax, after-inflation cost to you of losing a short period of Social Security accumulation probably isn’t going to be very large.
Trying to follow your last paragraph about not using investments or cash to cover social security while you suspend social security.I’ve reached FRA recently and am considering suspending social security and using cash to cover the suspended social security benefit. Here’s my reasoning, it’s like buying a deferred annuity now and recouping it starting in 3 years. I will obtain an additional 24% plus COLA’s added to the 24% starting in 3 years and this will continue for the rest of my life. That’s guaranteed income, not a potential income from investing in the market. Read numerous pieces were typical retailer investor has a hard time making a guaranteed 8% a year. Would recoup the funds spent in approximately 8 years. Family has a long history of living. If I’m missing something I’d more than happy to hear you out.
Jonathan,
Another great post!
And, by the way, ALL the decisions I make are 100% correct and anyone else who has decided differently is …
100% correct for THEM.
Personally, I refuse to discuss anything other than Sports with others.
If they bring up anything else I simply say
“You’re right. So let’s talk about baseball”
Winston – Great post, but even sports discussions can be problematic these days. I am amazed by Caitlin Clark, but surprisingly, there are many haters.
My youth sports book specifically promotes inclusivity of all social, ethic and economic backgrounds. Yet, I struggle with biological males being allowed to compete in girl’s\women’s sports.
Sports discussions have become much more complicated than Yankees or Red Sox, Duke or North Carolina, Brady or Montana, Bama or Georgia, Jordan or LeBron, and Chiefs or Bills – especially in relation to kids.
John,
100% agree.
Yes, there are, even in ‘sports’, certain areas which can be ‘problematic’.
So, again, I simply agree and ask about how they like the Cubs bullpen this year.
if they want to continue ‘discussing’ those other topics I stop commenting.
Jonathan: In answer to your question in the SS section, yes, back in 2014 I applied for SS and deferred so that my wife could start collecting 50% of my full benefit. This mechanism is no longer available as the Congress passed a law eliminating it as they claimed that only “rich people” were using it. I don’t consider myself to be “rich”, but I will take advantage of laws and/or procedures which are legally in place. Briefly, my wife and I decided to take the lump sum vs. the annuity as we were afraid we might die soon after taking the pension (car or airplane accident) and our kids would get nothing. I realize that all of this is really a roll of the dice as no one knows what’s going to happen going forward.
I took SS when I retired at age 66 in 2010. In retrospect, I wish I had waited until age 70, but that is water over the dam. I had money to cover my expenses until 70, but I was somewhat ambivalent about my choices. I do not think the argument to wait back then was as compelling as today. I remember some people argued that taking SS early versus later was actuarially equivalent.
The design of the SS benefits to be actuarially euivalent is based on the assumption that claiming age isn’t correlated with life expectancy. However, a recent study found an actuarial advantage for men with higher earnings who delay claiming SS.
Is the Adjustment of Social Security Benefits Actuarially Fair, and If So, for Whom?
Using Social Security Administration data and focusing on men, we find that late claimants have lower mortality than those who claim at age 62, so late claimants are adversely selected. As a result of selective claiming combined with improvements in actuarial adjustments, the return on delayed claiming has become systematically positive for those who actually delay, but not for those who claim early. We further find that selective claiming increases benefits more for those with higher lifetime earnings because their return on delaying exceeds actuarially fair amounts by larger margins.
https://mrdrc.isr.umich.edu/publications/papers/pdf/wp421.pdf
I did the same – FRA while still working but I invested the family SS benefits until they were needed after I retired. No regrets as I have a pool of money generating interest to use when I need it.
Some of this reminds me of the Serenity Prayer (“accept the things I cannot change”). If the decision is indeed irreversible, well, you made it and have to live with it, so why not be at peace with it? I can’t go back to 1999 and un-sell our starter home, which we absolutely should have kept as a rental rather than selling it for a modest $10K profit because we were too lazy to commit to being landlords long-term. That house goes on the market every few years and is worth at least 4X what we sold it for 25 years ago. But oh, well.
I guess the one time it might be worth honestly reflecting on your financial mistakes would be if a family member or friend is contemplating something and really wants your advice (not everyone does, of course). Then “learn from my experience and don’t make the same dumb mistakes I did” make sense.
You correctly point out that having guaranteed income via SS and an immediate fixed income annuity sufficient to cover your fixed expenses then may warrant a more aggressive allocation of your other investments to equities. Also important is the behavioral effects. I found that for those of us like myself who struggle to transition from an accumulation to drawdown stage of life, the greater level of certainty makes it at least a little easier to spend.
Those us fortunate to have a pension understand exactly what you are saying. There is nothing more valuable in retirement than a steady – even fixed – income stream.
The anti annuity vibe is misplaced and often based on confusion over variable as an investment and immediate as a good income.
The truth is most Americans are not equipped to handle the investment and withdrawal issues for a secure retirement without risk and stress.
My wife has a $72.29 monthly pension. So, she has one, but it’s not much. I think we contribute it to Humble Dollar every year, so it does serve a useful purpose.
A pension is great if it’s a decent dollar amount.
That mostly depends on how long a person is willing to work for one organization. My wife has a variable pension currently paying about $380 a month, but that is based on working for only 13 years ending in 1970.
I recently had a “discussion” with my 67 yo sister in law about waiting until 70 to claim Social Security rather than at 69. She brought up the topic and stated I had previously mentioned financial information recommends delaying claiming until 70. As I have written before my wife’s family has had two centurions in the last two generations. She is 10 years younger than her husband who makes a significant salary which would most likely cover all their expenses and more. I was surprised she got rather vociferous about the subject even though she hasn’t made the decision.
The emotional commitment is often very strong. It can seem that no amount of data or logical argument can dissuade them from their opinion that they made the right choice. I find it colors my own opinion of their thinking on other topics.
My father took social security at 62 simply because he wanted an excuse to not take any more job offers. Around that time he purchase a variable annuity with many false promises and “features,” only to wonder years later why the cash value was never increasing. He also had a portfolio full of high fee funds and dozens of individual stocks, under the management of a high fee advisor. When I first learned of his “portfolio” he was so proud of his annual returns; until I told him the return of a vanilla total stock market index. Considering the fact that his portfolio had no bonds (just a pile of cash used for market timing stocks) and only domestic stocks, his underperformance was significant. I tried to explain better options for both annuities and investments, but after several months it became obvious that he didn’t want to hear it.
I’ve since then had one similar experience on my wife’s side of the family, with someone who put all of their retirement money into whole life insurance. I learn this when she declared that “everyone should just buy life insurance.” I asked a few follow up questions, and she quickly became defensive.
People just want to be proud of their decisions, no matter how bad. And even if it’s technically possible to change course, doing so would mean admitting how much of a fool they had been up until that point. I’ve finally learned my lesson. For many people, it’s better to die a self-deceiving fool, than to acknowledge having been one in the past.
New York, Connecticut, Massachusetts, and Maine allow you to switch from Medicare Advantage to Original Medicare and a Supplement plan without underwriting. For some reason few seem to know about this.
Which is a shame. Allowing people (who typically want to make this switch because their health has declined) to move from Advantage to a Supplement without medical underwriting means EVERYONE who is covered by a Supplement plan will see their premiums rise. The “free lunch” those who take “advantage” of these laws is paid for by those who are in the Supplement plans.
In Maine, switching to supplemental insurance from an Advantage plan without underwriting is possible only under limited circumstances. I do not know about the other three states you have mentioned.
A lot of decisions are personal, and are based on how much money you have, and what accounts you hold it in. The decision that makes sense to a single guy with $4 million in a brokerage account, and $1 million in a retirement account, would be ridiculous for a married couple with $500,000 in a retirement account, and a house worth $1 million.
Some people are trying to lower their taxable income and grow their assets, and some people need to get every bit of income they can and hope their assets last. Two entirely different situations.
Jonathan, this article points the larger problem which is people pay little attention to these matters and go through life just bumping around.
HD readers are likely different and more keen on their decision making, but my years of working with more average and many blue collar workers tells me the issues you mention are largely ignored and yes, often at the persons peril.
When I negotiated union contracts even the union leaders were frustrated their members paid little attention to getting the most value from their benefits package.
Your last paragraph, Jonathan, really resonates. My brother faced the pension decision a little over a year ago after a second career with a big, military contractor. He chose the lump sum because he already had a military retirement which is a lifelong annuity stream plus social security. My Dad, on the other hand, in 1984, at age 65, was offered $60K or about $720 a month for the rest of his life after 30 years at Wyeth Labs. He took the pension (because he told me he didn’t want the reinvestment risk–a concept I was oblivious to at the time), and lived till he was 95. Let the actuaries ponder that!
A friend of my father’s moved into a retirement community that allowed you to make a lump sum deposit and then pay nothing additional as long as you lived there. He lived to 99 so he got more than his money’s worth. Roughly I’d guess he gave them $300,000 or so when he was 70 and lived there for 29 years. It was even a better deal because they increased the rent they charged along the way.
This is spot on Jonathan. I’ve heard all these arguments, and the arguer is rarely willing to second guess their choice. The driver is usually the fear of dying early and leaving money – SS, pension, annuity – on the table.That’s a legitimate concern, especially for those of us who want to leave something for our children. It’s very hard to balance that against the fear of outliving our money and becoming a burden to our children. Which is the bigger risk? Lat week I did a tax return for an elderly man with advanced Parkinsons. His 2023 medical and assisted living bills were over $200K. That’s the largest I’ve seen, but it’s a real risk as we age.
Re: “you can suspend benefits once you reach your full Social Security retirement age of 66 or 67, and thereafter collect delayed retirement credits until you restart benefits.”
I did that.