Money and the Momentous Decision to Retire

If other baby boomers and members of Gen-X are like me, they have taken a second, third or even a fifth look at their finances and asked: Will I really be able to retire?

The impulse to ruminate over this major decision may be driving the strong interest in recent Squared Away articles on financial topics ranging from whether retirees should continue to be homeowners – not always – to why people sign up for Social Security at age 62 and lock in the smallest monthly check possible under the program’s rules.

In “Homeownership in Retirement: an Asset or a Burden?,” researchers found that many retirees carry mortgages they can’t really afford. Having saved so little for their retirement years, the monthly payments – not to mention property taxes and maintenance – are a strain. This is particularly true of Black and Hispanic homeowners, who tend to earn less and have much smaller nest eggs than Whites. Unfortunately, after the surge in rents during COVID, renting is no bargain either.

The difference in savings that White vs Black retirees can use to pay their living expenses has been well documented. But that gap also widens as retirees age, according to new research featured in “White-Black 401(k) Gap Widens for the Old and the Rich.” Older White workers have six times more savings than their Black coworkers, but that gap grows to 10 times more in retirement.

Surely, some 62-year-olds who decide to start Social Security are unaware their monthly checks would have increased 7 percent to 8 percent a year if they’d waited. Physically strenuous jobs like construction also effectively force people to retire early. But older workers often start their benefits early because they feel a strong sense of ownership after paying decades of Social Security’s payroll taxes, according to research featured in “The Psychology of Starting Social Security at 62.” Not unrelated to that, they’re also afraid of losing money if they wait.

Healthcare is another financial concern for people thinking about retiring. Medicare is a great program but it’s not without risks.

For example, 65-year-olds who don’t know the government’s rules and sign up late for Medicare will pay a long-term price in the form of a larger monthly premium, according to an expert in “New Retirees: Avoid Costly Medicare Sign-up Mistakes.”

Another looming issue is faced by new retirees who go with low- or zero-premium Medicare Advantage insurance policies when they retire. They might find out later that switching to traditional Medicare supplemented by Medigap is either more expensive or no longer an option, as explained in “Medigap and the One-Way Street Problem.”

The decision about whether to buy an all-inclusive Advantage policy or Medigap is about more than just premiums, researchers concluded in “Medicare Advantage Reigns: So Who Still Buys Medigap?”

Retirees who spend more on health care are choosing Medigap because they believe their out-of-pocket costs will be lower with these policies. Many insurance brokers agree. The irony is that Medigap buyers are actually healthier than the people who choose Advantage plans. The implication of this study is that the less healthy retirees’ risk in buying Advantage plans is that they might wind up paying even more for healthcare over the long run.

Other financial issues around Medicare are detailed in “Employers Shift Retiree Coverage to Medicare Advantage” and “Part D Plans Ramp up Restrictions on Medications.”

Readers are also curious about the non-financial aspects of retirement covered in “Retirement is Filled with Surprises – Good and Bad” and in “4 Phases of Retirement: the Second One is Not Much Fun.”

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Much of the research described herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.