Most people know a thing or two about retirement. Stan Hinden, by contrast, knows 12.
And that should come as no surprise given that Hinden has recently published the fourth edition of his book, “How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire.”
According to Hinden, who is 86 and wrote the “Retirement Journal” column in The Washington Post for years after he retired as a financial writer in 1996, there are 12 important decisions that you must make before you retire. And in his book, he details those decisions. In an interview, he boiled those decisions down to the essence of the matter.
Learn more about the book.Are you ready to retire?Among the questions that you must contemplate is whether you are ready to retire. According to Hinden, there are three good reasons to retire. One, the time is right; two, you have more compelling things to do; and three, your job is changing. There are also three good reasons not to retire: One, your work is your identity; two, you will miss the people you work with; and three, you want to stay in the loop.
In the current economic environment, however, Hinden said, more and more people might be ready to retire but not able. “People aren't feeling comfortable about retiring,” said Hinden, who was born in the same year Charles Lindbergh first flew across the Atlantic Ocean. “So the answer to the question ‘Are you ready to retire?’ is ‘I’d like to, but I don’t know if I can.’ That is been a change since I wrote the first edition of the book in the retirement scene.”
Instead of retiring outright or only working, Hinden said he sees older Americans now doing both: retiring and working. And to him—and he’s living proof—that’s a good a way to enjoy the best of two worlds. (Hinden, besides updating his book, also writes a weekly column for AARP called the Social Security Mailbox.
Read that column.)
Can you afford to retire?To be fair, in the current economic environment, Hinden said the question of retirement is less about whether you are ready and more about whether you can afford to retire. And one of the key questions to answer about whether you can afford to retire is a rather simple one: Will your income in retirement be greater than your expenses? Of course, there’s more to it than that. But that’s the essence of it.
“When you approach retirement, you really have to sit down and look at your financial situation and try to estimate what your income will be and what your expenses will be,” he said. “It seems to be more and more people will find that their expenses may be more than their income.”
There are, of course, ways to increase your income and lower your expenses. But there are some hard truths to consider as well. One, retirement includes living mostly on a fixed income without the benefit of salary increases as there were during one’s working years. And two, retirement includes expenses that aren't fixed: health-care costs and taxes tend to rise often faster than inflation.
Among the many things you can do to increase your income, according to Hinden, is use the power of time and compounding. He recommends saving and investing as much as you can as earlier as you can in employer-sponsored and other types of retirement accounts, including Roth IRAs and Roth 401(k)s.
Another issue that plagues current retirees has to do with the zero-interest-rate world. It’s becoming increasingly difficult for older Americans to generate income without having to put their assets at risk in the stock and bond markets. “It hasn’t been easy” finding safe investments, he said.
When should you apply for Social Security?One way to increase your income in retirement, according to Hinden, is to delay taking Social Security till age 70, if you can afford it. That is especially so in this low-interest-rate environment and the benefits of this tactic, the delayed retirement credit. (Your Social Security benefit will increase 8% per year for every year you delay taking it after full retirement age.)
Read Retirement Planner: Delayed Retirement Credits.Thus, delaying taking Social Security accomplishes two things, he said. One, you’ll get the largest possible Social Security benefit. Plus, widows and widowers will get the largest possible survivors benefit. Read Survivors Benefits.
“If you can afford it, the better decision is to wait,” said Hinden.
To be sure, deciding when to apply for Social Security is very much a personal decision. And the numbers seem to suggest that most take Social Security either at full retirement age or sooner. In fact, some 74% of the 35.6 million retired workers received reduced benefits because of entitlement before full retirement age, according to a recent government report.
Read Annual Statistical Supplement to the Social Security Bulletin, 2012.
“It was obvious in the past, and even more so now, that people take Social Security early for two reasons,” he said. “One, they need the money. And two, people may be afraid they won’t live long enough to get as much as they think they would like to get.”
If, however, you have enough money or income from other sources, from work or from your portfolio, to carry you from normal retirement age till age 70, then it is a good deal to delay taking Social Security, he said. “I live in a place where there are at least a dozen people who are 99 or 100-plus years old,” he said, suggesting that delaying Social Security could make a big difference if you happen to live that long. “If this is a good bet, then the odds are growing in favor of taking your Social Security later.”
Hinden also noted that the widow’s survivors benefit “will be much, much better” if her husband has waited at least until full retirement age to collect Social Security. “One of the main reasons for poverty among aged widows is the fact that their Social Security is so low,” he said. “And the reason it is so low is because their husbands took their benefits at age 62.”
How should you take your pension?Another decision some retirees have to make concerns their pensions and whether to take a lump sum, or monthly payments based on a single life or on a joint-and-survivor basis. In his case, Hinden said, he took his pension as monthly payments based on his life. But now, with the benefit of hindsight, he would have chosen the joint-and-survivor annuity, the option where the monthly payment is reduced but doesn’t end if he predeceases his wife, Sara. “At the time, I had a fair amount of life insurance,” he said. “But then one day I sat down and did some arithmetic and began to realize that I made the wrong decision. The arithmetic I did was to figure out what income we were getting as a couple and then figuring out what income Sara would get as a single person, as a widow, after I died. And without the pension, she would not have done very well. It was pretty clear that if I done that arithmetic before I retired I would have made a different pension decision.”
Often, he said, we don’t realize the repercussions of making the wrong decision until it is too late.
“The one theme that I’ve been trying to stress in the book all this time is that, as Sara frequently told me, preparation is next to Godliness,” Hinden said. “And she was right. These decisions are coming up. There are many things that you have to learn about retirement. Start learning them now. Start thinking about what you need to know and that will help you a great deal when you finally retire.”
In fact, he said, he wrote his book to help people learn all the things that he should have known before he retired.
What should you do with the money in your company savings plan?Among the many things that you need to know is what to do with the money in your employer-sponsored retirement plan, after you retire or leave your company. According to Hinden, the best option typically is to roll over your IRA. He also suggested that workers consider not investing in their company’s stock inside in their retirement plans or keep it to a small percentage.
When do you have to take money out of your IRA?When it comes to taking money out of your IRAs and other retirement accounts, Hinden offered this advice: “My advice would be to avoid a bad case of ‘brain sprain.’” Hinden said those who are faced with the deciding when and how to take money from their IRA should work with a financial adviser or CPA who is familiar with IRA distribution rules. “It’s not a hard calculation to make if you understand the tables and how they work but they are complicated,” he said. “I can remember the first time I did it I wrote a column asking why retirement had to be such hard work.”
How should you invest during retirement?As for investing in retirement, Hinden said, the trick is to strike a balance between investing for growth and investing for safety. Hinden said he “got caught in the tech bubble” and in retrospect he wishes he had been more conservative with his investment portfolio. And in general, given the vagaries of the market, he recommends that retirees be more conservative than aggressive with their investments. “I’m not in favor of putting everything in bonds,” he said. “You still need stocks. You still need growth and protection against inflation. But you have to do it carefully. There is a price to being in the market. And no matter how well diversified you are, it may not matter.”
What should you do about health insurance?Hinden also recommends that retirees purchase, if able, Medigap insurance—given the increase in health-care costs, the expenses that Medicare doesn’t cover, and the potential that health-care costs could ruin one’s retirement. “Medigap is very important,” he said. “I’ve always had it since I went on Medicare, and I wouldn’t give it up. I think it is absolutely essential that people have Medigap insurance if they are on Medicare.”
Visit the government’s website, Medigap Policy Search, to learn more about Medigap policies.Hinden also expressed concerns over efforts to make “Medigap more expensive and more difficult to use.” Policy makers suggest that if Medigap policies cover less of beneficiaries’ costs, some seniors will be less likely to overuse Medicare-covered health care services.
What should you do to prepare for an illness that requires long-term care?Hinden also recommends that Americans, if they can afford it, purchase long-term care insurance. “And if they can’t afford it, they should figure out a way to afford it,” he said.
Hinden, in this case, speaks from personal experience. His wife Sara, who became afflicted by Alzheimer’s disease in 2007 and now resides in an assisted living facility, has benefited from a long-term care insurance policy Hinden purchased some years ago. “That long-term care insurance policy has been a Godsend to her,” he said. “It doesn’t cover a whole lot, but it is enough to really make a difference.”
Where do you want to live after you retire?As many know, most Americans prefer to age in place. And the same can be said of Hinden. After raising his family, he and his wife moved to a retirement community and stayed there for many years. After his wife developed dementia, they moved to a senior residence where they could access more health-care support. Today, his wife lives in an assisted living house and he continues to live in the senior residence.
How should you arrange your estate to save on taxes and avoid probate?According to Hinden, death is not only an emotional event, but also a legal event and a taxable one. And a favorable outcome depends on advance planning, getting good advice, and carefully assembling your financial records and documents.
How can you age successfully?Hinden said the key to aging successful is a matter of three things. One is to exercise, particularly walking, on a regular basis, two is diet, to eat well, and three is to retain your social contacts. “You need to continue to be part of groups or clubs, to be in touch with people.” he said. “It’s extremely important to be in touch with people. Nobody ought to become a couch potato in retirement. Retirement can be a great experience.”
Robert Powell is editor of Retirement Weekly, published by MarketWatch.
Learn more about Retirement Weekly here.Follow his tweets at RJPIII.Robert Powell is a MarketWatch Retirement columnist. He has been a journalist covering personal finance issues for more than 20 years. Follow him on Twitter @RJPIII.
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