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Fully Committed

Jonathan Clements

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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