Life’s Biggest Financial Decisions — The Later Years

Out of all the many financial decisions we make, some matter a lot more than others. Last time around, we looked at the decisions that really matter when we’re relatively young (See Life’s Biggest Financial Decisions — The Early Years). Now let’s look at those that matter most as we get older.

How you manage your career. Periods of unemployment or underemployment can be a huge drain on your finances. To be sure, sometimes being out of work is unavoidable. But to whatever degree our career—our employability—is within our control, it’s essential that we are proactive.

That means a lot of things. Going back to school for additional training or an additional degree, especially if your employer offers tuition reimbursement. Volunteering for more challenging assignments. Staying connected with others in our industry or an industry we want to move into.

I regret not being more intentional in this area—not doing my part to build a better relationship with a key professor when I was an undergrad, not thinking strategically enough. It’s really important to be intentional in managing your career.

How you manage your health. I’ll never forget hearing an aging expert give a talk in which he said that a hundred years ago if a deadly disease swept through your town, you would probably get it and you might die. But today, with better immunizations and better healthcare overall, we mostly kill ourselves. His point was that lifestyle choices — smoking, not exercising, not getting enough sleep, carrying too much stress—are prime causes of so much needless suffering and premature death. Of course, along the way, it all takes a toll on people’s finances.

How much you save for retirement. There are some aspects of investing we can’t control. Bull markets and bear markets, interest rates, inflation, and more. But one factor that’s well within our control is how much we set aside each month in our retirement account.

One action step that’s proven to motivate people to set aside more is running some numbers with an online retirement planning calculator. Use Fidelity’s Retirement Score calculator, which requires just six bits of information. Then use Fidelity’s more detailed planner (it’ll be available to you after you complete the Retirement Score), which will give you an even better perspective on your retirement preparedness and may just motivate you to save more.

When you pay off your house. More people than ever are carrying a mortgage into their retirement, a time of life when it would be especially beneficial to own your house free and clear. Oftentimes, the culprit is a refinance that reset the 30-year mortgage clock to an ending date well into a person’s 70s or beyond.

It’s fine to refinance if you can get a lower interest rate, but it’s best to be done with house payments when you retire. If you’re 50 or 55, that might mean refinancing into a 15-year mortgage. Or planning to sell the house you refinance when you retire and then downsizing to a less expensive house you can buy mortgage-free.

When you retire. Age 65 is an artificial deadline, a relic that dates to the beginning of Social Security in 1935 (when life expectancy was 58!). For many people, retiring early is bad for their health and happiness and a stress on their later life finances.

We weren’t made for lives of leisure. We were made for lives of contribution. Plus, the more years you spend in retirement, the more you need to have saved to cover your living expenses all those years. That said, the research shows many people have to retire at age 65 or even earlier, either because of their own health issues or the declining health of a loved one they need to care for.

My advice? Plan vocationally and health-wise to retire at age 70 at the earliest while you plan financially to retire at around age 67 just in case you can’t make it to age 70.

When you claim Social Security benefits. The most popular age to claim Social Security is the earliest possible age—62. However, waiting until your Full Retirement Age (67 for those born in 1960 or later) will mean a much larger monthly check. Wait until age 70 and you’ll get even more. (Check your estimated benefits.)

Sure, claiming at age 62 means more years of collecting benefits. If you wait until age 67 or 70, you’ll have to live into your 80s before your larger monthly check catches up to the total distributions you would have received if you claimed at age 62. However, we’re living longer than ever. Plus, especially in married couple households in which the husband is eligible for larger benefits, it really pays for him to hold off on claiming benefits until age 70. That’s because when he dies, his wife will be able to replace her benefit with his.

If you’ve taken the steps suggested in the earlier post, these are my recommendations for the next set of tracks to run on—the assumptions and ideas to bake into your planning. If you’ve not taken all of these ideal steps, trust me, you’re not alone. So, don’t let posts like this discourage you. Just decide which of these ideas make the most sense for you in your current circumstances and take the next step forward.