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Friday, October 18, 2013

9 Smart Reasons To Rethink Your Retirement Plans

If anything has been a casualty of the Great Recession, it's America's traditional vision of retirement — clocking out at age 65 and settling into a condo in Florida.

Instead, workers today are coming to grips with the very realistic notion that they may work well into their 70s.

But is that really such a bad thing?

"For some people continuing to work is an economic necessity due to shrinking nest eggs and rising medical costs," Ken Budd, executive editor of AARP The Magazine, told Business Insider.

"As people not only live longer, but continue to feel healthy, why slow down? The rocking chair is out, entrepreneurship is in," says Budd. "Older Americans are driving much of the growth in new businesses. People want to feel productive, regardless of age."

Here are a few smart reasons you may want to rethink your retirement plans:

1. It will make you fat.

Researchers have found a link between approaching retirement age and expanding waistlines.

"People who are close to retirement age show the highest rates of weight gain and obesity," write the authors of "The Effect of Retirement On Weight," published in the Journal of Psychological Science.

More than 37,000 individuals aged 50 to 71 were analyzed over a 10 year period. Retirees averaged a 0.24 increase in their Body Mass Index.

"Given the increasing number of people approaching retirement age, the population level impact of the weight gain ascribed to retirement on health outcomes and health care system might be significant," they conclude.

2. You've relied on your partner for financial security.

In the same University of Missouri study, Prof. Yao found spouses who retire around the same time could be setting themselves up for financial failure.

“It makes sense that many married couples would want to retire around the same time,” Yao says. “However, if both spouses decide to retire close to the end of an up market, the household would have little to no cushion should their retirement portfolios be affected by an economic downturn.”

That's not to say couples can't sail off into retirement together, but it further drives home the need to carefully plan out each step of the road to retirement — hopefully under guidance from a financial planner or at least with a carefully calculated retirement savings goal in mind.

3. You're only following the crowd.

"I have spoken with many retirees who retired because that was the logical thing to do, or because all their friends had crossed over to retirement, leaving them to be the unbearable odd man out," says Jim Heafner of Heafner Financial Solutions, Inc.

But "some never find the satisfaction that their work provided," he says. "Others retire only to discover that they weren’t financially prepared. They learn firsthand how small the job market is for 60-year-olds. Typically, they cannot find a job that pays nearly as well as the one they just retired from."

4. It can lead to early death.

In a study led by University of Zurich economist Josef Zweimuller, researchers found groups of blue collar workers who retired three years earlier than a control group had far higher mortality rates. In fact, for every year of early retirement, they shaved about two months off their lives.

Zweimuller and his fellow researchers attributed the trend to decreased mobility, which, including aforementioned weight gain, can lead to depleted cardiovascular and mental health.

5. You haven't figured out your "number" yet.

Do you know exactly how much liquid assets you'll need to carry yourself through retirement? If you can't answer 'yes', chances are you're not ready for the golden years.

Nickel, the anonymous blogger behind Five Cent Nickel, takes a slightly different approach than basing future needs on your current income:

"Start by estimating your post-retirement expenses. Average it out across a year. From there, estimate what sort of investment returns you’ll be able to generate — yes, you’ll need a crystal ball for this.

"From there, divide that rate (as a decimal) into one to find your multiplier. So, for example, if you think you can generate 4% real returns (i.e., 4% returns after accounts for inflation, so more like 7% nominal returns) then you’ll need 25x your annual expenses (1 / 0.04 = 25). If you think you’ll only be able to generate 3% real returns, then you’ll need 33x your expenses. And so on."

6. You'll miss being challenged.

"The people who do retirement right are the ones who say, 'I seem busier now than I was when I was working,'" says AARP's Budd.

"It’s when you stop challenging yourself, or get in a rut, that retirement can be un-fulfilling," he says. "A lot of people define themselves through their work, and when that work is suddenly gone — when you feel like you don’t have a purpose or an identity — it can be jarring."

As for proof that activity keeps retirees healthier and happier, Budd points to a Johns Hopkins University study that found volunteers who tutored struggling students in reading and math improved brain plasticity and delayed age-related neurological decline.

7. You're swimming in credit card debt.

Retiring with a significant load of credit card debt is rarely a wise route to take, says John Ulzheimer, president of SmartCredit.com.

"When it comes to credit card debt you absolutely have to get out of it before you hang up your company badge," Ulzheimer says. "It's very likely the most expensive debt you're carrying at 13% to 15% [interest] on average, and twice that in some cases. No retirement nest egg can guarantee that kind of growth."

Think about it. For every dollar you save toward retirement, you could be paying that or more on interest on credit debt.

"It's much easier to pay off debt with employment income than it is with retirement income, such as a pension, dividends, interest or Social Security," he adds. "You're much more nimble while you're working than you are in retirement, and you certainly don't want to come out of retirement to address debt that you knew about before you retired in the first place."

8. You've prioritized finances over fulfillment.

"People spend most of their time planning their finances for retirement, but not their fulfillment in retirement," Budd says.

"We once profiled a man who decided that for the first year of retirement he would do whatever he wanted," he says. "So he went for long walks, he skimmed the newspaper online, he sat in Starbucks and read Grisham novels."

The takeaway? Try a phased retirement plan, Budd says. You might start by paring down your work schedule to part-time work and then possible moving on to volunteer work afterward.

9. You haven't planned your will yet.

In a 2011 study by RocketLaywer.com, more than half of Americans admitted they hadn't written a will yet — including 44% of those aged 45-64.

Without a plan in place, you could leave your estate's future in the hands of squabbling family members or your state, which would appoint an administrator to handle everything.

"(A will) enables you to start thinking about issues like whether you have the right insurance coverage, life insurance, and ways of replacing your lost income," RocketLawyer founder Charley Moore said.

This is doubly important for gay spouses, as states that don't recognize gay marriages would pass over spouses in favor of next of kin.

This is an update of a piece that previously ran.