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.
http://www.marketwatch.com/story/12-questions-to-answer-before-you-retire-2013-02-28?pagenumber=1
