The Most Important Financial Decisions of Your Life

There are only a handful of watershed moments in our lives, most of which heretofore have entailed large outlays of money, such as weddings, college graduation, buying a home, the birth of a child--days we’ll never forget. As baby boomers approach retirement, some more watershed moments--decisions--will likely influence how well you will enjoy retirement, financially and psychically.

Planning your financial future involves a lot of decisions, but some are more important than others. The closer you get to retirement, the more critical they become, but even if retirement is a decade or two away, the sooner you start thinking about these critical decisions, the better prepared you will be to make the “right” decisions. The world of retirees is rife with those who made unsound decisions to their eternal regret.

These decisions are best classified according to how difficult they are to undo once the decision is made.

  Three Critical Decisions

How much it’s going to cost you to live when you retire. While human nature prevents many baby boomers from wanting to figure out how much retirement living expenses are likely to be, this calculation is nevertheless essential. You may be pleasantly surprised to discover that it will cost you a lot less to retire in style than the scary amounts that are commonly proffered in the media.

When to commence Social Security retirement benefits. Most people think that the best decision is to collect Social Security benefits at the earliest possible time, and it may well be. But many considerations should enter into the decision, which, once made, you’ll have to live with the rest of your life.

Whether to purchase an annuity. Income annuities—those that pay a lifetime income—are becoming pop u lar among retirees, but investing in one is a move that is best considered well before you retire. After all, it, too, is an irreversible decision. The advantages and drawbacks of annuities and alternatives to annuities will be described to help you make a smart decision about if and when you should purchase an annuity. These three weighty matters are the subject of this chapter, but other crucial decisions that you will be making are unpleasant to reverse and are discussed elsewhere.

 
Big Decisions That Are Costly or Painful to Undo

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When to retire. If the surveys are to be believed, baby boomers aren’t in any hurry to retire. Perhaps it’s because they worry about not having enough money or becoming bored. But in matters of retirement planning, imprecision is unwise. Chapter 7 will help you consider the effect of retiring early or later. If you’re still desirous of retiring later, you will be pleasantly surprised, if not astounded, at how much more income you’ll be able to enjoy in retirement.

Where to retire. Do you want to stay put, sell the family homestead but stay in the same locale, move to another area of the country, or move to a foreign realm? As never before, baby boomers are considering a wide range of relocation options, and many would- be nomads are planning to move well before retirement age. Help with this big decision can be found in chapter 9.

NOTHING IN YOUR FINANCIAL LIFE IS “EITHER/OR”

A lot of people think that most of their financial decisions are “either/or”—they must either take one course of action or the other. But most financial decisions don’t require you to do either one thing or the other. Often, a combination is more appropriate.

Examples abound:

• If you can’t decide whether to sell an investment you own, you can always sell half. That’s what a lot of professional investors have always done when unloading a holding.
• If you’re trying to decide between using a full service broker or a low- commission broker and no- load mutual fund company, why not use the low- commission broker and/or no- load fund company for your own investment decisions, and the full- ser vice broker for investment guidance and recommendations?
• If you’re trying to decide whether term insurance or cash value insurance is better, try getting part cash value and part term insurance.
• Owners of traditional IRAs who qualify are often in a quandary as to whether they should convert them to Roth IRAs. Perhaps converting part of the IRA money to the Roth is the answer. You could always convert the rest later.
• Compromise may be advisable with long term-care insurance policies. Either you get the coverage with all the expensive bells and whistles or you go naked (that’s insurance jargon), right? A compromise might be to obtain a basic policy that offers considerable protection but won’t bankrupt you with gargantuan premiums.
• Some baby boomers think they must either take a lump- sum payout from their company retirement savings plan or put the money into an income annuity. But again, perhaps a combination of a lump sum and an annuity is the better course of action. 

I will be live as this month's Ask The Author Wednesday, December 20th from 2-4pm, and will answer your money questions. Leave a comment below and be sure to join me on the 20th.