With so many factors to consider, retirement planning can be confusing. Luckily, the National Endowment for Financial Education (NEFE) doles out free advice regarding Social Security benefits, home and mortgage options, insurance choices, retirement plans, savings and investment opportunities, and work-related choices while providing debt-reduction guidance and warnings against scams that target older Americans.
Most people are eligible to claim Social Security at the age of 62, but delaying that claim until at least the full retirement age (between 66 and 67, depending on the individual’s date of birth) can increase payments significantly. Waiting until age 66 can increase payments by as much as 30 percent, while waiting until age 70 can increase them by as much as 75 percent.
Home and Mortgage
NEFE warns homeowners against relying too heavily on the value of their home because of fluctuations in the housing market. It’s better strategy to develop other forms of savings, the nonprofit says.
Moreover, NEFE has advice for those considering reverse mortgages or home equity loans.
“Reverse mortgages should be evaluated carefully” by investigating “all charges, fees and other options,” according to NEFE. “Home equity loans should be assessed based on research and your specific needs. Get advice from a qualified financial planner about your best options.”
When it comes to health insurance, NEFE recommends taking advantage of employer health care coverage for as long as possible. Then, after age 65, retirees should consider purchasing Medicare Parts B and D.
Medicare is not a free pass; in fact, it may only pay about half of your health care expenses. Allow for out-of-pocket expenses and premiums, some say as much as $250,000 for a couple over their lifetime in retirement,” according to NEFE.
Covering costs in excess of Medicare coverage can be tricky, but NEFE says to take a look at long-term health care insurance options and fixed annuities, the latter of which provides monthly income for a period of time, potentially for the rest of one’s life.
For those with a 401(k), NEFE says not to cash out before age 59 ½; instead, save every penny for retirement. With regard to employer pension plans, retirees may have the option of choosing between accepting a lump-sum payment and receiving a steady “paycheck.”
“If you take a lump-sum pension payment from your employer, resist the temptation to spend it! Instead, invest it carefully,” NEFE explains.
Savings and Investments
NEFE recommends diversification in retirement for the simple reason that “you don’t know how long your retirement will last.”
Cash is obviously crucial, and NEFE says retirees should set aside about a year’s worth of living expenses in cash “to avoid having to sell investments at low values.”
Don’t, however, withdraw too much for living expenses on a day-to-day basis.
“Make sure you have enough money for at least 30 years of retirement. Don’t withdraw more than 4 percent of your savings in the first year.”
Choosing when to leave a full-time job isn’t easy, but NEFE’s advice can bring clarity to the decision-making process:
“Don’t stop working until you prove you can afford to — as long as you are healthy.”
Aim to work at least until your full retirement age in order to increase Social Security payments, add to your nest egg and keep employer health care benefits going for longer.
Consider both a “phased retirement” from your current job and adding a new, part-time job.
Pay off as much of a mortgage, as well as credit card and consumer debt, as possible, NEFE says. As difficult as this may sound, the nonprofit recommends thinking of the 10 years before retirement as one’s
“debt-reduction decade.” During this time,“track your spending, and pay your bills on time” and “if you think you may fall behind, talk with creditors early and often, not after you are late on your payments.”
Since older Americans are often the targets of fraud, NEFE offers a number of tips to guard against scammers.
Remember that most fraud is committed by people the victims know, including friends, neighbors, business associates, and social and religious institutions, NEFE explains. Most important, however, as with any financial decisions at any age, people should be patient and consider all their options.
“Get second and third opinions from people you trust,” NEFE says. “Never yield to pressure tactics, and remember that if something sounds too good to be true, it almost always is.”