As a recent retiree reflecting on a 45-year career, I’ve realized there are several things I wish I had known before retiring. Retirement can be a fulfilling chapter filled with travel, family visits, and new pursuits, but it also comes with unexpected challenges. Here are six crucial lessons I learned about retirement:
- Avoid Borrowing from Your 401(k):
- My Mistake: In my 40s, I borrowed $5,000 from my 401(k) to pay off credit card debt. Although allowed by the IRS, it was a costly decision.
- The Consequence: The borrowed amount and lost investment returns can significantly reduce your retirement savings over time. Additionally, some plans prohibit contributions during repayment, missing out on potential employer matches and growth opportunities.
- Eliminate Credit Card Debt Before Retiring:
- Debt-Free Retirement: Entering retirement with minimal debt, especially high-interest credit card debt, is essential for maintaining a comfortable lifestyle on a fixed income.
- My Approach: I managed to pay off my credit card debt before retiring, but it was through self-motivation rather than guided advice.
- Consider a Health Savings Account (HSA):
- HSA Benefits: HSAs offer a tax-free way to save for medical expenses. Unlike Flexible Spending Accounts (FSAs), HSAs roll over year-to-year and can be used in retirement for qualified health expenses.
- My Regret: I discovered the benefits of HSAs too late to take full advantage. Many still working and eligible should prioritize contributing to an HSA for long-term health expense coverage.
- Research Your Retirement Location Thoroughly:
- Know Before You Go: Spending time in potential retirement spots helps you understand the pros and cons, from tax rates and local services to lifestyle and amenities.
- Our Experience: My wife and I moved to Staunton, Virginia, after frequent visits and remote work opportunities. We found a balance of scenic beauty and lower living costs but also faced some trade-offs like fewer dining options.
- Manage Expectations About Time with Loved Ones:
- Family and Friends: Retirement often includes plans to spend more time with loved ones, but their schedules and routines may not align with yours.
- Our Realization: Our lengthy post-retirement trip revealed that old friends and family had their own busy lives. It’s important to respect their schedules and make flexible plans.
- Be Prepared to Work, If Needed or Desired:
- Financial Realities: Inflation and unexpected expenses can affect your retirement budget, potentially necessitating part-time work.
- Personal Fulfillment: Many retirees, including myself, find purpose in continuing to work. Whether to stay active or supplement income, having the option to work can be beneficial. For me, writing remains a passion I’ll never abandon.
Conclusion: Retirement brings new opportunities and challenges. By avoiding common financial pitfalls, planning for health expenses, thoroughly researching potential retirement locations, managing expectations with loved ones, and considering part-time work, you can better navigate this stage of life. For personalized advice, always consult with a financial planner to tailor these lessons to your unique situation.