Your last day of work has arrived, and now you're ready to live your dreams. Hopefully, you have some dreams, and have been making plans for a while. But whether you have a pretty good idea about what to do with the rest of your life, or only a vague idea, do yourself a favor. Don't make any rash decisions. Don't jump into a new lifestyle like retirement as an impulse purchase. Because once you make your move, often there's no going back.
To avoid stumbling over the retirement cliff, watch out for these seven pitfalls:
1. Moving right away. Many people dream of living by the seashore or up in the mountains. But are you really ready to move away from your old neighborhood, and maybe away from family? Are you sure you'll be comfortable living up in the hills, where it's five miles to the nearest store and where the winters may be harder than what you're used to. Conversely, are you prepared to deal with the humid air, the mildew, and the constant wind that you're likely to find at the shore? If you're going to move somewhere far from home, try it out first. Rent a cottage for a year. Find some new friends, and make sure your old friends will come to visit like they said they would.
2. Buy a second home. Maybe you got a buyout at work, or your mortgage is paid off and you think you can afford a second home. Besides, you can rent it out when you're not there, and everyone tells you the market is soft and this is a great time to buy. But you're getting older and you're no longer working, so you won't get any more raises or bonuses. And taking care of a second home is more work, more responsibility, and more expense. Renting out your second home takes time and effort. Do you really want to deal with weekenders who break dishes, stain furniture, and maybe stiff you on the rent?
3. Buy a boat. Maybe you've pictured yourself sailing off into the sunset, and you can't wait to fulfill this long-postponed dream. I'm not telling you to defer your dream. I'm suggesting you lease a boat for the season to see if the reality of a boat meets your image of a boat. Maybe you'll discover you really want a bigger boat, or a smaller one, or that you didn't really want a boat at all.
4. Take Social Security too early. The government dangles a Social Security check in front of your nose as soon as you turn 62. It's tempting to grab it, especially considering the political winds which may eventually blow away some of those benefits. Almost half of eligible people sign up for Social Security at age 62. But most experts agree that the smartest financial move is to wait as long as you can. Under current law, your payments increase about 7 percent per year for every year you wait, up until age 70. For most people, that is a good deal.
5. Drop your health insurance. You're getting older and now is not the time to gamble on your health. If you retire before 65 (when you're eligible for Medicare), make sure you can either stay on your old employer's plan or sign onto your spouse's plan. If you can't carry over medical insurance, a group or association you belong to may offer an individual medical plan or your state may have a health insurance option. Regardless, do not retire without a health plan.
6. Assume your spouse has the same dream you do. Talk to your spouse. This may seem obvious, but a lot of people don't do it. He may want to move to a golf community; she may want to stay put and work a few more years. She may want to move closer to the grandchildren, while he wants to rent an RV and tour the country. Hopefully, you've been discussing your plans for years. But remember, just because you're retired doesn't mean you don't have to compromise.
7. Wait too long. Don't get paralyzed by the choices in front of you. There is a time to do research, a time to experiment, and a time to discuss and compromise. But at some point you must set your course—even if your choice is to stay home and babysit your grandchildren. You must know the days are getting shorter. It's time to pull up the anchor on your old life, and set sail on your retirement voyage.
Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.