Most people know a thing or two about retirement. Stan Hinden, by contrast, knows 12.
According to Hinden, who is 86 and wrote the “Retirement Journal” column in The Washington Post for years after he retired as a financial writer in 1996, there are 12 important decisions that you must make before you retire. And in his book, he details those decisions. In an interview, he boiled those decisions down to the essence of the matter. Learn more about the book.
Are you ready to retire?
Among the questions that you must contemplate is whether you are ready to retire. According to Hinden, there are three good reasons to retire. One, the time is right; two, you have more compelling things to do; and three, your job is changing. There are also three good reasons not to retire: One, your work is your identity; two, you will miss the people you work with; and three, you want to stay in the loop.
In the current economic environment, however, Hinden said, more and more people might be ready to retire but not able. “People aren't feeling comfortable about retiring,” said Hinden, who was born in the same year Charles Lindbergh first flew across the Atlantic Ocean. “So the answer to the question ‘Are you ready to retire?’ is ‘I’d like to, but I don’t know if I can.’ That is been a change since I wrote the first edition of the book in the retirement scene.”
Instead of retiring outright or only working, Hinden said he sees older Americans now doing both: retiring and working. And to him—and he’s living proof—that’s a good a way to enjoy the best of two worlds. (Hinden, besides updating his book, also writes a weekly column for AARP called the Social Security Mailbox. Read that column.)
Can you afford to retire?
To be fair, in the current economic environment, Hinden said the question of retirement is less about whether you are ready and more about whether you can afford to retire. And one of the key questions to answer about whether you can afford to retire is a rather simple one: Will your income in retirement be greater than your expenses? Of course, there’s more to it than that. But that’s the essence of it.
“When you approach retirement, you really have to sit down and look at your financial situation and try to estimate what your income will be and what your expenses will be,” he said. “It seems to be more and more people will find that their expenses may be more than their income.”
There are, of course, ways to increase your income and lower your expenses. But there are some hard truths to consider as well. One, retirement includes living mostly on a fixed income without the benefit of salary increases as there were during one’s working years. And two, retirement includes expenses that aren't fixed: health-care costs and taxes tend to rise often faster than inflation.
Among the many things you can do to increase your income, according to Hinden, is use the power of time and compounding. He recommends saving and investing as much as you can as earlier as you can in employer-sponsored and other types of retirement accounts, including Roth IRAs and Roth 401(k)s.
Another issue that plagues current retirees has to do with the zero-interest-rate world. It’s becoming increasingly difficult for older Americans to generate income without having to put their assets at risk in the stock and bond markets. “It hasn’t been easy” finding safe investments, he said.
When should you apply for Social Security?
One way to increase your income in retirement, according to Hinden, is to delay taking Social Security till age 70, if you can afford it. That is especially so in this low-interest-rate environment and the benefits of this tactic, the delayed retirement credit. (Your Social Security benefit will increase 8% per year for every year you delay taking it after full retirement age.) Read Retirement Planner: Delayed Retirement Credits.
Thus, delaying taking Social Security accomplishes two things, he said. One, you’ll get the largest possible Social Security benefit. Plus, widows and widowers will get the largest possible survivors benefit. Read Survivors Benefits.
“If you can afford it, the better decision is to wait,” said Hinden.
To be sure, deciding when to apply for Social Security is very much a personal decision. And the numbers seem to suggest that most take Social Security either at full retirement age or sooner. In fact, some 74% of the 35.6 million retired workers received reduced benefits because of entitlement before full retirement age, according to a recent government report. Read Annual Statistical Supplement to the Social Security Bulletin, 2012.
“It was obvious in the past, and even more so now, that people take Social Security early for two reasons,” he said. “One, they need the money. And two, people may be afraid they won’t live long enough to get as much as they think they would like to get.”
Hinden also noted that the widow’s survivors benefit “will be much, much better” if her husband has waited at least until full retirement age to collect Social Security. “One of the main reasons for poverty among aged widows is the fact that their Social Security is so low,” he said. “And the reason it is so low is because their husbands took their benefits at age 62.”