The Color of Money

Being forced into retirement raises many tough financial questions

By Michelle Singletary
Washington Post / August 14, 2011

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At the beginning of the summer, at 65, a friend was laid off from her job. She wisely sought the advice of a financial planner, but she’s still worried about making the wrong choices.

She wanted help in reviewing her options. If she makes the wrong decision - or panics, as many investors have done since the debt-ceiling deal was announced - she could run out of money.

As we talked, she struggled to answer my questions. She’s better off than many people forced into retirement. At least she has a pension. And yet near the end of our conversation, she was in tears.

“I should have done more,’’ she said. “I just didn’t know. I just didn’t know.’’

She shouldn’t feel guilty. She did the best she could with the information she had. If you are in the pre-retirement phase of life or you have been pushed into retirement because of a job loss, you are going to face a blizzard of choices. And, what a time to have to face them.

Here are just a few of the issues my friend was weighing last week.

■ Should she take a lump sum from her pension or opt for monthly annuity payments that continue until she dies. She’s not married, so she doesn’t have to worry about options that would affect a spouse. (AARP has a calculator that helps evaluate pension options. Go to If she takes the lump sum, she controls the money. If she invests it, and all goes as planned, she could generate the same amount if not more income than the annuity would have provided.

On the other hand, the annuity payment is a guaranteed monthly stream of income. What if her former company goes out of business? She didn’t know that the Pension Benefit Guaranty Corp., a federal agency, is responsible for paying the benefits of failed pension plans.

■ She has to decide if she wants to keep her 401(k) where it is or roll it over to an IRA. If she does the rollover, she will have to decide how to invest this too.

■ How aggressive should she be in her investment choices? The returns have to be enough to stay ahead of inflation. At 65, she could have another 20 years or longer to live off that money.

■ Should she take Social Security now or wait until her full retirement age at 66? Can she afford to wait and collect at 70, when her benefit will be larger? AARP also has a Social Security benefits calculator to help with this decision.

■ She signed up for Medicare, which is important to do when you turn 65. Otherwise, you could face higher premiums. She has to see if she can afford long-term care insurance. Medicare does not cover long-term care.

■ Should she pay off the mortgage on her condo? It would take about half of what she has saved, but it will get rid of her largest monthly financial obligation.

My friend has to gather more information before she can fully evaluate her choices. Retiring has become too complicated. People are expected to do calculations that include making guesses that would make anybody cry.

Michelle Singletary is a columnist for The Washington Post.

SOURCE: Bloomberg News