Unfortunately, life is full of “either/or” decisions, and sometimes, once you make a decision, there is no going back.

When it comes to your retirement, a bad decision can upset your plans and complicate your Golden Years. As a financial advisor in Greenville, SC, I’ve unfortunately seen this happen time and time again. Don’t guess when it comes to your future! The Global View team compiled 5 important retirement decisions when this often happens. Sometimes the right answer isn’t clear-cut. If this is the case, don’t be afraid to ask for help! Mistakes can have lasting effects. And sometimes, they simply can’t be undone.

If you have a question that is not addressed here or would like to discuss your specific situation in more detail, let’s talk! A no-obligation conversation can go a long way.

Schedule a complimentary conversation with the Global View team to see how we can help.

When to Take Social Security Benefits

Most retirees require more than just Social Security payments to ensure a nice retirement, but this guaranteed income source does play an important role. With that said, the timing of when you take your Social Security benefits can have a major impact on your post-work lifestyle.

There’s a lot of confusion around this decision.

First, there’s the concept of your full retirement age, which is the age at which you are eligible to receive your full benefit amount. This age is not the same for everyone! If you were born between 1943 and 1954, for example, your full retirement age is 66. When you reach this age, you are eligible for 100 percent of your benefits. If you were born in 1960 or later, your full retirement age is 67.

However, you can start taking your Social Security benefits any time between ages 62 and 70. If you choose to take your benefits before your full retirement age, you will receive less than your full benefit amount, but you will be able to receive your payments earlier. If you delay filing your claim beyond your full retirement age, your benefit increases 8 percent per year until you reach age 70.

Once you decide to start taking your benefits, you can’t undo the decision unless you first give all the money back. Therefore, you want to make the right decision at the get-go. Obviously, the longer you wait, the more money you’ll receive each year, but you could receive payments for fewer years. The opposite is true if you file your claim early.

Before making a decision, make sure to consider several factors, including your age, health, income, expenses and life expectancy. A financial advisor can help walk you through your options, including spousal and survivor benefits, to help you decide the optimum course of action. At Global View, we can also calculate your break-even age.

For more about Social Security, check out our new guide: Navigating Social Security. You can also download our new Social Security worksheet here.

Starting Your Retirement Planning/Investing Late

You can’t reclaim time, and time is one of your biggest allies when it comes to investing for your retirement. Simply stated, the sooner you start, the better. When retirement is many years away, you have time to ride out bear markets and to recover from investment mistakes. You can also benefit from the compounding of your interest, dividends and capital gains over a longer period of time, and you have more years to make contributions to your retirement accounts.

Having said all that, coming late to the party isn’t fatal, but it may require a different strategy. For example, you may have to contribute more to your retirement accounts, and perhaps adjust your retirement plans, such as tweaking your projected retirement age and lifestyle. It may also require you to slim down your current budget so that you have more money to invest.

How to Receive Your Pension Benefits

When it comes to pension benefits, you can usually take your benefits as a lump sum or as an annuity.

If you choose a lump sum, you receive all your money at once. If the distribution is taxable, you can face a large tax bill, and the extra income may push you into a higher tax bracket. You’ll also lose the benefit of tax-deferred or tax-free investment growth, and you’ll have to decide how to deploy the money you receive.

However, you may have the option of rolling the funds into an IRA, which gives you control of the distributions. It also allows you to better control the taxation.

The other alternative, an annuity, pays you monthly income either for a set period of time or for the rest of your life. These payments may be fixed and thus vulnerable to inflation. Pensions are usually funded by pre-tax contributions, and unless you contributed after-tax money, all distributions are taxable.

Talk to a financial advisor before making a decision!

Not Taking an RMD on Time

The age at which you must take Required Minimum Distributions (RMDs) from an IRA or qualified-employer plan is 72. However, if you are still working at that age, you can postpone taking RMDs from your qualified-employer plan (not your IRA) until you retire.

Your RMDs are calculated by dividing the prior year-end balance of the account by the IRS life expectancy factor published in Publication 590-B. It is your responsibility to calculate the correct RMD each year, although, of course, you can have a financial advisor help you.

If you fail to take your RMD on time, the amount not withdrawn will be taxed at a rate of 50 percent, although the penalty tax may be waived if you prove the error was reasonable and that you are taking steps to resolve the problem.

Note that Roth IRAs do not impose RMDs.

Withdrawing from a Retirement Plan Early

If you withdraw from your retirement plan early, you may be subject to a 10 percent penalty unless you qualify for an exception. In most cases, the penalty applies to distributions taken before age 59-½. However, for a qualified-employer plan, you may be able to withdraw money penalty-free as early as age 55 if you have separated from the employer.

Unless the distributions are from a Roth account, the money is taxable as ordinary income. For a Roth account, in which you take withdrawals before the fifth anniversary of your first contribution, the earnings portion (not the contributed amounts) may be subject to taxes and penalties. Consult the appropriate IRS publications for a full explanation of the penalty exceptions and the rules for tax-free rollovers from one retirement account to another.

Don’t Make a Mistake That Can’t Be Undone

As a financial advisor in Greenville, SC, the Global View team has seen too many retirees make mistakes with the decisions above – mistakes that can be avoided! A financial advisor can be a tremendous resource.

Global View is a fee-only, fiduciary financial advisory firm headquartered in Greenville, South Carolina that serves investors nationwide. Our mission is to provide truly independent, conflict-free advice and complete wealth management services, so you can protect and maximize the wealth you’ve built. If you’re nearing retirement, just getting started with your retirement planning or are somewhere in between on your financial journey, let’s talk! Information is powerful. Mistakes can be permanent.