Top Ten Stupid Retirement Tricks

I couldn’t resist.  In honor of David Letterman’s retirement I had to weigh in with a Top Ten list of my own.

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 #10.  Putting all your retirement money into equity-indexed annuities. Granted, if you do this, you just made your annuity salesperson very happy because you may have helped them earn enough to make The President’s Trip. But, before you sign up, do your homework and read up on them. Here’s what has to say: Equity Indexed Annuities.

#9. Quitting your job before you have enough quarters for Social Security.   Learn more here: Social Security Guidelines 

#8. Quitting your job before you have enough quarters for Medicare.  Use this calculator to verify you have worked enough to qualify:  Medicare Eligibility

#7. Quitting your job before you verified your pension benefits.  If you are one of the lucky ones who still qualifies for a pension at work, make sure you know what you’re getting.  For some people, taking the lump sum distribution is best while for others, the annuity payment makes the most sense.  Be sure to evaluate all your options before submitting that final paperwork.

#6.  Forgetting to sign up for Medicare.  Within 3 months of turning age 65 you need to sign up unless you are part of a group plan.  If you don’t sign up on time you may have to pay an enrollment penalty of 10% per month for twice the number of years you could have had Medicare but didn’t sign up.  Certain restrictions apply; learn more about them here:  More Medicare Information

#5.  Holding on to the distribution check from your 401(k) rollover for more than 60 days.  You need to deposit the distribution in a qualified account, like an IRA or another 401(k) plan sooner than that to avoid paying taxes on the entire amount.

#4.  Spending the lump sum distribution from your retirement plan on a timeshare while on vacation in Mexico.   Yes, the warm sun, sparkling waters, and colorful drinks inspire many people to do silly things.  I also know many people who own and love their timeshares but don’t buy new, while under pressure, on vacation.  There are thousands of timeshares for sale online that are available for a fraction of the cost of a new one.  But don’t use your retirement plan distribution to pay for it; invest that money in a tax-deferred account so it can continue to grow to support you through your retirement.   If you don’t have separate savings available, skip the timeshare altogether.

#3. Waiting until you’ve given notice at your job to figure out how much money you need in retirement.  Your desired lifestyle may cost more than you think and it is difficult to get a do-over on that final job departure.

#2. Making investment decisions on what you heard yesterday on CNBC or FOX News.  Retirement is a phase of life, not an event. You need a plan, not a hot tip.

And, finally,

#1. Not verifying your financial advisor is a fiduciary.  You need to make sure the person you are working places your interests before his or her own.  The CFP Board lays it out pretty clearly: CFP Board Fiduciary Standard.  

Happy Retirement, David Letterman!

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Readers, if you have any retirement tips of your own, please share.


College Funding Sanity Check for High School Seniors

Oh my gosh — it’s spring already! Acceptance letters and financial aid packages have been received, final decisions on which school to attend are being made, the high school counseling office is excited to be notified, and graduation is just around the corner. All in all, an exciting time for high school seniors and their families.



It is also an ideal time to take a sanity check and make sure the collegiate path chosen is one that fits not only goals and aspirations but finances as well. Each year I speak with young college graduates who feel overly burdened with student loan debt (well over $100,000 in many cases!) that I want to keep others from falling into the same trap.

College is an excellent investment. I have yet to meet anyone who graduated from college and regrets having a college degree. I don’t believe you need to know exactly what you’re going to do as a profession once you graduate. Most college graduates change majors at least once while earning their undergraduate degrees. College is a time for exploration. You develop critical thinking skills, you get to know people from a wider range of backgrounds, and you learn how to become a lifelong learner.

What concerns me is the desire among some high school students to attend a college at a cost that is way beyond their means. In the United States we have so many excellent choices for learning at widely varying price points that it is possible to get a great education at a price you can afford.

It’s natural to get swept up in the excitement of going to college. What can get lost is a thorough explanation and understanding of the financial cost of the student loans that are granted to new high school graduates. It is pretty easy for a student to borrow $25,000 per year for four years of college. This is the average cost to attend an in-state public university. In a typical loan arrangement, interest accrues but no payments are due until six months after graduation. Upon graduation, the balance due will be around $118,000 if the loans have a 6.8% interest rate. To repay this debt in 10 years, a typical repayment period, the monthly payment will be $1,358.

In certain fields such as engineering, computer science, or finance, $1,358 per month might be manageable. For others, however, such as education, psychology, or marketing, this amount eats up a third to half of the typical paycheck.
In either case, is this much debt desirable? It will certainly interfere with the ability to finance a car, condo, or just about anything else the first five years after graduating. “Saddling graduates with crippling debt limits their ability to take career risks and limits entrepreneurship,” according to Don Phillips, managing director at Morningstar. “It forces people to follow the highest-paying professions rather than their passions. It also creates generations of young people who will be severely constrained in their ability to save for their futures, thus putting a bigger drain on society.”1

Before helping your future college student sign on for this much debt I recommend three things:

1.Check out the Federal Student Aid website if you haven’t done so already. This site has information on the latest repayment plan options, sources for grants, scholarships, and work-study programs. A little research and legwork can save thousands of dollars.
2.Research the salaries in different fields of study — not just the ones your student is focused on but on some that are tangentially related — to get a feel for what it’s reasonable. A place to start is the National Association of Colleges and Employers. These surveys don’t reflect how many applicants there were for the positions hired so bear in mind that some fields are tough to break into.
3.Aim for graduating with no more than one year’s salary in student loan debt. Figure out how best to utilize other sources of funding such as savings, work-study, grants and scholarships, as well as less expensive education options to keep the debt in check.
Taking a sanity check on the cost of the college education, and balancing sources of funding against potential future salaries, means that not only can there be fun, rewarding times during college, but there will also be fun, rewarding times after graduating!

1Phillips, Don. “A Costly Education: Amid soaring prices, financial planners need a role in solving what ails U.S. Universities”, p10. Morningstar Magazine. April/May 2015.