Retirement planning often focuses on making the right decisions. When should you retire? When should you claim Social Security? How much should you withdraw from your investments?
But there is another question that may be just as important:
How easy will it be to change your mind later?
Some retirement decisions are relatively easy to reverse. You can adjust your spending, change where new investment contributions are directed, or revisit your travel plans. Other decisions are much harder to undo, and some can affect your financial picture for decades.
That is why good retirement planning is not about predicting the future perfectly. It is about making thoughtful decisions while you still have choices and preserving as much flexibility as possible.
Here are five retirement decisions that deserve particular care.
- Claiming Social Security Too Early
Deciding when to claim Social Security is one of the most important retirement decisions many people will make.
You can begin receiving benefits before your full retirement age, but claiming earlier generally means accepting a permanently reduced monthly benefit. Waiting longer can increase your benefit, potentially providing more income later in life.
The challenge is that there is not one universally “right” claiming age. Your decision depends on your health, life expectancy, other sources of income, tax situation, spouse’s benefit, and how much you need the income.
The bigger issue is that once you have made the decision, there is limited ability to simply go back and change it.
For example, someone might claim Social Security early because they believe they need the income. But if their other investments perform well or their circumstances change, they may later wish they had waited for a larger monthly benefit. Conversely, someone who delays benefits may find that their health or financial circumstances would have made earlier benefits more useful.
The point is not that everyone should delay Social Security.
It is that a decision that can affect your income for the rest of your life deserves more thought than simply asking, “Do I need the money right now?”
- Retiring Too Early
Retirement can be an exciting goal. After decades of working, the idea of having more control over your time is understandably appealing.
But retiring is more than leaving a job. It means giving up future earnings and potentially beginning to rely on your portfolio years earlier than originally planned.
A few additional years of employment can make a significant difference. You may continue adding to retirement accounts, delay withdrawals, allow investments more time to grow, and potentially postpone Social Security. You may also have access to employer health insurance or other benefits.
Once you have retired, going back to work is possible, but it is not always as simple as it sounds.
Your position may no longer be available. Your priorities may have changed. Your health or family circumstances may make returning to work difficult. And after becoming accustomed to retirement, going back to a full-time career may not be particularly appealing.
That is why it is important to distinguish between wanting to retire and being financially ready to retire.
Sometimes the best answer is not working full time for several more years. It might be reducing your hours, changing careers, consulting, or finding another way to earn income while transitioning into retirement.
The more flexibility you have around your retirement date, the more options you have when circumstances change.
- Taking Large Withdrawals from Retirement Accounts
Your retirement accounts are there to fund your retirement. So taking money out is not necessarily a bad decision.
The concern is when a large withdrawal is made without considering the consequences beyond the immediate need.
A significant withdrawal can reduce the assets available to generate future income. It can also create a larger tax bill, potentially push you into a higher tax bracket, affect Medicare premiums, or change how much of your Social Security is taxable.
And once the money has been spent, you cannot simply put the exact same years of investment growth back into the account.
This does not mean you should never take a large withdrawal. There are plenty of situations where it makes sense. Paying off a mortgage, purchasing a home, helping with a major expense, or making a significant lifestyle purchase may all be reasonable uses of retirement assets. The question is whether the withdrawal fits into the larger retirement plan.
Before taking a substantial amount from a retirement account, it can be helpful to ask:
What does this decision mean for the next 10, 20, or 30 years, not just this year?
Sometimes a large withdrawal is exactly what you need. Sometimes there may be a more tax efficient or sustainable way to accomplish the same goal.
- Making Major Investment Changes During a Market Downturn
Market downturns can make even experienced investors question their plans.
When account values are falling, moving a large portion of a portfolio to cash can feel like taking control of the situation. Unfortunately, that decision can create a second problem: when and how do you get back in?
Selling after a decline is a decision that can be difficult to reverse emotionally, even if it is technically easy to reverse financially.
Imagine an investor who becomes uncomfortable during a significant downturn and moves most of their investments to cash. The market eventually begins to recover, but the investor is still nervous. They wait for things to “feel safe” before reinvesting. By the time they feel comfortable, much of the recovery may have already happened.
This is one reason a well-designed investment strategy should account for the possibility of market declines before they happen.
If your portfolio is structured in a way that allows you to meet near term spending needs without selling investments after a significant decline, you are less likely to feel forced into a major decision at exactly the wrong time.
The goal is not to avoid every market decline. That is impossible. The goal is to avoid allowing a temporary market event to force a permanent change in your long-term plan.
- Using Retirement Assets to Provide Significant Help to Adult Children
Many parents want to help their children financially, and there is nothing wrong with that. In fact, helping family members can be an important part of someone’s financial plan.
The challenge comes when the amount of help begins to affect the parents’ own financial security.
We have written previously about the considerations that come with financially supporting adult children. The issue here is slightly different: using retirement assets can make the decision much harder to undo.
If you give a child money from a checking or savings account, you may be reducing your available cash. But if you withdraw a substantial amount from a retirement account, you may also create taxes and permanently reduce the assets available to fund your own retirement.
And unlike working income, retirement income generally has a finite source. There may not be an opportunity to simply earn the money back.
Before making a significant financial gift, it can be helpful to ask:
If I give this money away today, will I still be comfortable with my own retirement plan if I live longer than expected, experience higher expenses, or encounter a major market downturn?
Helping your children should not require putting your own financial future at unnecessary risk.
A Simple Question to Ask Before Making a Big Retirement Decision
None of these decisions are automatically good or bad.
Retiring early can be wonderful. Claiming Social Security early can be the right choice. Taking a large withdrawal can accomplish an important goal. Changing your investment strategy can sometimes be necessary. And helping your children can be deeply meaningful.
The important question is whether you have considered what happens after the decision.
Before making a major retirement decision, consider asking yourself:
- Is this decision reversible?
- What happens if my assumptions turn out to be wrong?
- How will this affect my taxes?
- How could this affect my spouse or family?
- Will this decision reduce my options later?
- Am I making this decision because it fits my plan, or because of something happening right now?
Those questions can be especially valuable during periods of uncertainty. When markets are falling, when a family member needs help, or when you are eager to leave the workforce, it is easy to focus on the immediate problem. Good retirement planning takes a longer view.
You do not need to predict exactly how long you will live, what markets will do, or what expenses you will face ten years from now. You simply need a plan that gives you room to adjust when reality does not follow the script.
The best retirement plan is not necessarily the one that predicts the future perfectly. It is the one that gives you options when the future does not go according to plan.
Planning for the Decisions Ahead
Retirement decisions can have lasting consequences, but you do not have to make them alone. At Uncommon Cents Investing, we help clients look beyond the immediate decision and consider how each choice fits into their broader retirement plan. If you are approaching retirement or already retired and would like a second opinion on your plan, we invite you to schedule a complimentary introductory call. It is an opportunity to learn more about how we work, share what you are hoping to accomplish, and determine whether we may be a good fit to help you move forward with confidence.
