I couldn’t resist. In honor of David Letterman’s retirement I had to weigh in with a Top Ten list of my own.
#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 Bogleheads.org 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.
#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!
Readers, if you have any retirement tips of your own, please share.