Yesterday, I wrote about three mistakes in retirement planning an AARP financial professional made in his own life. Today, I’ll continuee with the next three points from the original Yahoo Finance feature.
These are three additional actions or attitudes you should not emulate:
Our professional, Stan, may have shortchanged his wife. Regarding his pension, he was required to choose between a larger monthly payout which would have lasted until his death or a lesser monthly payment to last after his death to help his wife pay for expenses after he is gone. He chose the maximum monthly payment.
Now that he has come to his senses, his calculations “showed that if Sara were widowed, her monthly income from Social Security plus her own company pension would barely cover her monthly expenses. She would need income from our savings to make ends meet.” He regrets his choice.
Stan was not aware of “givebacks.” If you’re receiving Social Security benefits, and you’re between the ages of 62 and 65 (soon to be 67), you lose $1 of benefit for every $2 you earn over $12,480. This should be taken into consideration when planning your retirement date if you’ll be counting on benefits from the Social Security system.
This is as good as a time as any to point out that most people look at Social Security as a retirement plan. It’s actually government-sponsored wealth distribution, so don’t ever expect to “get back what you put in.” What you put in is mostly not for you.
Hey, big spender. Stan was loose in the wallet. He says credit cards “put you in a budgetary straitjacket that erodes your financial flexibility and uses up the cash you may need for unexpected health or other expenses,” if you’re paying interest and not reducing the balance to zero each month. Try to find ways to cut back on the spending as you approach retirement (or throughout your entire salary-earning career), and you’ll have more for spending later on.
Stan wasn’t a complete retirement-planning dunce, and that’s good to know considering he is a financial expert according to his byline. The two things he did correctly in planning his own retirement — were there really only two things? — were joining a 401(k) and planning for his Grand Exit (wills, funerals, etc.).
Updated January 16, 2010 and originally published June 20, 2006.