Top 10 Stupid Retirement Tricks

Late night talk show host David Letterman is well into his retirement—he retired in the spring of 2015—but his decades of list-making has inspired me to create a list of my own. This list relates to planning for life after work and, of course, in true Late Night with David Letterman fashion, what not to do in crafting your retirement plan. (For related reading, see: 10 Signs You Are Not Ready to Retire.)

Don't Do These 10 Things

10. Put all your retirement money into equity-indexed annuities. Granted, if you do this, you've made your annuity salesperson very happy because you may have helped him or her earn enough to make The President’s Trip. But, before you sign up, do your homework and read up on them. (For more, see: 3 Equity-Indexed Annuities: A Comparison.)

9. Quit your job before you have enough quarters for Social Security. A quarter of coverage is the basic unit for determining whether a worker is insured under the Social Security program. The Social Security Administration explains more on its site

8. Quit your job before you have enough quarters for Medicare. There are a handful of calculators that will verify whether you have worked enough to qualify.

7. Quit your job before you have verified your pension benefits. If you are one of the lucky ones who still qualifies for a pension at work, make sure you know what you’re getting. For some people, taking the lump-sum distribution is best while for others, the annuity payment makes the most sense. Be sure to evaluate all your options before submitting that final paperwork. (For more, see: The Top 5 Retirement Mistakes to Avoid.)

6. Forget to sign up for Medicare. Within three months of turning age 65, you need to sign up for Medicare unless you are part of a group plan. If you don’t sign up on time, you may have to pay an enrollment penalty of 10% per month for twice the number of years you could have had Medicare but didn’t sign up. Certain restrictions apply.

5. Hold onto the distribution check from your 401(k) rollover for more than 60 days. You need to deposit the distribution in a qualified account, like an IRA or another 401(k) plan sooner than that to avoid paying taxes on the entire amount.

4. Spend the lump-sum distribution from your retirement plan on a timeshare while on vacation in Mexico. Yes, the warm sun, sparkling waters, and colorful drinks inspire many people to do silly things. I also know many people who own and love their timeshares but don’t buy new, while under pressure, on vacation. There are thousands of timeshares for sale online that are available for a fraction of the cost of a new one. But don’t use your retirement plan distribution to pay for it. Instead, invest that money in a tax-deferred account so it can continue to grow to support you through your retirement. If you don’t have separate savings available, skip the timeshare altogether.

3. Wait until you’ve given notice at your job to figure out how much money you need in retirement. Your desired lifestyle may cost more than you think and it is difficult to get a do-over on that final job departure. Be sure to speak to an advisor to help come up with an idea of what you'll need to fund the way you want to live post-work. (For related reading, see: 5 Taxing Retirement Mistakes.)

2. Make investment decisions on what you heard yesterday on CNBC or FOX News. Retirement is a phase of life, not an event. You need a plan for the long-term, not a hot tip based on of-the-moment market fluctuations. 

1. Not verify that your financial advisor is a fiduciary. You need to make sure the person you are working with places your interests before his or her own. The CFP Board lays it out pretty clearly.  

Hope retirement is all it's cracked up to be, David Letterman! (For related reading, see: Top 4 Most Common Retirement Mistakes.