Life is filled with choices, and some of them will lead to regrets. That’s certainly true in the financial area, where Americans routinely grapple with difficult decisions.
Most everyone has financial regrets (if they’re being honest), though 15% of respondents in a survey by Bankrate.com said they have no such concerns.
Maybe these people put all their money into the stock market at the start of the bull rally in 2009, bought their dream homes with little cash down and adequately funded their retirement accounts and children’s college education. But chances are, they didn’t.
At any rate, here are five issues related to retirement and Social Security that can cause second-guessing years from now.
1. Don’t tap Social Security early
Yes, there might be good personal reasons to start taking Social Security retirement benefits as soon as you can, at age 62, or soon thereafter. These include a recent job loss, financial stress such as that centered around high medical bills and even an expectation that you might not live that much longer and want to recoup the money you paid into the system.
Still, this is an area of possible regret because recipients who tap into Social Security early are locking themselves into lower monthly payments than would be the case if they delayed, thus increasing the odds that they eventually could run out of money.
The MassMutual survey elicited responses from more than 600 Social Security recipients ages 70 and up.
2. Don’t wait too long to start saving
Not saving early enough for retirement is the recurring top choice when respondents cite their top financial regrets, according to an annual survey by Bankrate.com.
It was cited by 18% of respondents in last year’s poll, eclipsing not saving for emergency expenses (cited by 14%) and carrying too much credit card and other debts (10%). Bankrate will publish this year’s results later this month.
Regrets about not saving early for retirement grow more pronounced with age, according to the study. Unfortunately, the older people get, the more difficult it is do anything about it by boosting incomes.
Meanwhile, younger adults often are more preoccupied with different priorities such as paying down student loans and trying to afford cars, homes and other big-ticket items.
“Retirement seems so far away, and there are more pressing financial needs” such as repaying student loans, said Dagmar Nikles, a retirement-plan specialist for investment giant BlackRock.
But eventually, retirement will come into focus for younger adults, too.
3. Don’t be too conservative
Retirement planning is a long-term pursuit, often spanning three decades or more. This means young investors have the luxury of gravitating toward stocks and other growth assets without worrying about price fluctuations along the way. Unless you will need to cash out within a few years, growth assets are the sensible choice.
Still, it’s not easy to avoid overreacting to those occasional jarring down days or to prolonged swoons that might last a year or two. That’s why most people prefer to anchor a growth portfolio with bonds, cash instruments and other stable investments.
“If you play it too safe, your retirement income won’t be enough to keep pace with inflation,” said Dana Anspach, a certified financial planner with Sensible Money in Scottsdale. But if you’re too aggressive, you’re likely to react to market downturns by selling out when prices are low, she added.
In short, a balanced portfolio usually is the best option, especially one that starts out with riskier assets at earlier ages and grows more conservative over time. But older investors who might not tap their accounts for maybe a decade often can be more aggressive than they think.
4. Be smart about withdrawing retirement funds
Even if you get a decent start on retirement planning, you still can mess things up later. Aside from depleting your savings with early withdrawals, you can incur taxes and penalties and subject your Social Security benefits to taxes if you’re not careful.
“Two common mistakes are taking Social Security at the wrong time or withdrawing money in a way that costs more in taxes,” Anspach said…….Read more>>