Photo by Donna Ruiz on Unsplash

Out of the thousands of important decisions you’ll make, there are only four that you can’t take back.

Most of your day-to-day decisions have zero impact on your life. “Honey, do you want round or flat noodles for dinner tonight?”

Others can have an impact that you’ll live with for years: “Should we buy a Tesla or a Dodge?”

Then there are the titanic decisions that are so consequential that you better darn well get them right or they’ll change the course of your life. “Let’s have kids,” or “I’m going to get a snake tattoo on my face.”

Retirement is a new frontier with lots of confusing rules and uncomfortable decisions that require some, ugh, research. Some of those — four to be exact — are almost impossible to take back. Those decisions are the ones that matter.

No decision is, in itself, a decision.

-William James

If you choose to charge into retirement with your eyes closed (as many do), you won’t know what you’ll get until you get it.

And you might not like that.

1. How much will you spend?

The phrase “retirement budget” sends shivers down the spines of even the strongest-willed accountants.

Living on a fixed income is much different than the squishy framework of spending you had when you were employed. Yet as much as we like to avoid it, finance is the concrete foundation of retirement. Almost everything is built upon it. The size of your home, where and how you vacation, what you buy and enjoy — all of that depends on how much you can afford to spend without running out of money.

You can’t “ramp up your income” in retirement without messing up your future. Overspending is a clear and present danger to you, your spouse, and your family, that’s not easy to manage until you work the numbers.

Make two estimations:

1. How much do you want to be able to spend?
2. How much income and savings will you have to support that?

The first estimation is as simple as looking at your current expenses and adjusting them up to accommodate extra costs of healthcare and frivolity, and down to reflect the lower cost of retirement life. Experts have found that people spend about 20% less in retirement.

The second estimation is a combination of how much income you’ll get from Social Security, pensions, income streams, and savings withdrawals. These depend heavily on the length of time you’ve worked, your earnings history, diversified income streams, and your investment approach. Pick a starting point such as retiring at age 67 and a savings growth of 6%.

Now compare the two estimates and see how well they match. If they do, you’ve established your budget. If not, you’ll need to tweak your expenses, work longer, and increase your savings rate.

You’ll go back and forth a few times before you settle on a number and when you do, you’ll find the perfect balance between working longer and enjoying retirement.

When you have it all figured out, you can make the next irreversible decision.

2. When will you quit your job?

The end of the day on your final day of work is exhilarating. You have no expectation of ever going back to work again and there’s no reason you should if you’ve planned well for your retirement.

Unfortunately, many people don’t consider the full scope of retirement and they end up back in the workforce because they’re bored, lonely, or unhappy.

Knowing when to retire is much more than just having enough money.

Even if you have enough money to retire, ask yourself first “Am I ready?”

• Do I have a good non-work social network?
• How will I fill my days?
• Where will I find meaning?
• What are my passions?
• What will an average day look like a few years into your retirement?
• Do my plans and expectations line up with my spouse’s?

Talk to retirees and ask them how they’ve adapted. Practice being retired by visualizing yourself as a retiree.

There’s a reason for all those jokes about retirees working as a Walmart greeter. It doesn’t take long to become too old and obsolete to command the position and income you had.

You simply can’t put it back the way it was.

3. When will you take Social Security?

A lot of people don’t realize that retirement and Social Security are separate events. You can retire and not take benefits, or you can take benefits and keep working (if you’re past full retirement age).

Once you take it though, there are only two unusual situations where you can change your mind, and they’re both complicated and painful.

Considerations:

The earlier you take Social Security benefits, the lower your checks will be for the rest of your life. It literally pays to take some time to assess your future and the timing of electing to receive benefits.

• Expected lifespan: Look at your relatives and estimate how long you’ll live. If it’s over 85 then you should wait as long as you can to maximize your total benefits. If under 80 then consider taking it sooner. In between, it doesn’t matter so much.
• Taxes: If your income (as a couple) is over $32,000 you’ll pay at least some tax on your Social Security income. That’s not such a big surprise, but what could be a terrible surprise is if that income bumped you from one tax bracket to the next.
• Age gap: If you and your spouse have a significant age gap, be particularly careful to discuss and agree on retirement plans, and carefully consider how long your resources will last — the typical 4% withdrawal rule may not apply. Further, spousal benefits and survivor benefits (if applicable) depend on when the older spouse claims, so it’s often best for the older spouse to wait as long as possible.
• Pensions: Pensions are similar to Social Security but they vary by provider. You may be able to elect to receive a lump sum or monthly annuity. Many also offer the option to receive less so that your surviving spouse can continue to receive benefits up to and even after your death.

A word on Medicare

Most of your Medicare decisions are reversible, but there’s one important “gotcha” that you should be aware of: Don’t miss your enrollment window (usually 3 months before and after your 65th birth month) or you may end up paying a penalty for the rest of your life.

4. How will you leave your legacy?

“Nothing is certain except death and taxes,” is the famous quote attributed to Benjamin Franklin. I’m pretty sure some have found ways to evade taxes, but I can assure you that none of us will evade death.

“Old age isn’t so bad when you consider the alternative.”

-Anonymous

Most Americans (90%) over the age of 65 live comfortably in their community. After the age of 85 though, those statistics change dramatically, and you have a 50/50 chance of ending up temporarily visiting or moving to an assisted living facility.

Depending on where and when you decide to retire, you and your spouse could spend $200,000 to $300,000 on healthcare alone in your retirement years.

Assisted care facilities can set you back $3,000 to $10,000 a month depending on the opulence desired and the level of care you need. If you haven’t planned for it, you can quickly spin down your savings until Medicaid kicks in, leaving you with less desirable care and draining resources from your spouse. Long Term Care insurance is an option, but research it carefully because it can be extremely expensive and carry limited benefits.

Death with dignity

Planning for death isn’t about you, it’s about your family. Choose to help them in their time of grief and plan ahead with a Will, Powers of Attorney, and Health Directives. Consult an estate planner for details in your state.

The decision to “get your affairs in order” is the greatest gift of love you’ll ever leave for your family.

Decisions, decisions

Retirement can be a giant confection of confusion, and when it is, every decision is a crisis.

Luckily, it doesn’t have to be that way, because not all decisions are created equal. Most are trivial or reversible and when you know which ones to pay attention you, you’re miles ahead of the rest.

So relax and enjoy planning for, and living a wonderful retirement.