Smart Moves by Ellen James Martin

Living Large in Retirement

An Ohio couple in their 60s -- a nurse married to a homebuilder -- long dreamed of owning a condo in Hawaii they could use as a retirement retreat. But they feared such a purchase would be imprudent from a financial perspective.

The couple in this true story consulted both their financial planner and Matthew Allen, the CEO of a company that helps consumers maximize their Social Security benefits. A thorough analysis revealed that they could indeed afford the luxury.

“Many people spend more time planning a vacation than their Social Security. But people who maximize their Social Security can take more vacations and maybe even buy a vacation home,” Allen says.

Here are a few pointers for retirees:

-- Try to avoid taking Social Security benefits early.

Lesley Brey, a certified financial planner, says once they’re eligible, many people find the notion of tapping Social Security benefits tantalizing. This is especially likely if they’re eager to buy a second home.

“At age 62, the temptation to start drawing Social Security benefits right away can be very, very strong,” says Brey, the president of a fee-only financial planning firm.

She urges anyone who can hold out for larger retirement benefits at age 66 or beyond to do so. And she says it would be particularly unwise to claim early -- with diminished benefits -- for the purpose of helping fund a second home purchase.

“You won’t get rich collecting Social Security. But it’s a strong, government-backed annuity with cost-of-living adjustments that you can collect for the rest of your life. In case you live to 94, you want to be sure you have a sufficient financial buffer,” Brey says.

Still, she says that too many older Americans hinder their financial plans because they began claiming their Social Security benefits at age 62, when they’re first able to do so.

“It’s much better to wait to age 66 -- your full retirement age -- when you can collect a larger benefit check. Social Security benefits are for the rest of your life. You shouldn’t give up this longevity insurance lightly,” says Brey, who’s been in the financial planning field since 1997.

-- Run the numbers before committing to a property purchase.

Eric Tyson, a personal finance expert, recommends that before older boomers start searching for a vacation property, they should ask an accountant or financial planner to help them create a retirement budget.

Alternatively, they can create their own budget with the use of one of the free retirement income calculators available on the Internet through such investment companies as Vanguard or T. Rowe Price.

In making your calculations, Tyson strongly recommends you assume you’ll survive into your late 80s or even 90s.

“You want to project forward for your income needs for as long as you think you’ll live, even if that means retiring somewhat later than you’d like,” says Tyson, co-author of “Personal Finance After 50 for Dummies.”

The only people who can afford to assume an abbreviated life span, Tyson says, are those who’ve been diagnosed with serious medical issues.

“Whether or not you’re buying a second home, be sure to plan long-term, unless you have good reason to believe your life will be cut short due to major health problems,” he says.

-- Don’t let political rhetoric distract you from your goals.

One of the hottest topics of the current political season is whether the government should cut Social Security benefits to help reduce the ballooning federal budget deficit. Such talk has many older baby boomers fearful their benefits could be slashed, says Craig Copeland, a senior research associate with the Employee Benefit Research Institute in Washington, D.C.

In the belief that cuts could be imminent, Copeland says many older boomers think they should claim their Social Security benefits as soon as they’re eligible, at 62. That way, they reason, they can “lock in” benefits while there’s still time.

But Copeland and other Social Security experts contend that for political reasons it’s highly unlikely that older boomers -- those born between 1946 and 1954 -- will ever face benefit cuts from Congress. And he thinks it’s even more doubtful that the benefits of those already receiving Social Security will ever be cut.

“Remember that older people represent a powerful voting bloc,” Copeland says.

-- Factor lifestyle into your retirement planning.

Tyson says older boomers who are already well funded for retirement can still take advantage of relatively low mortgage rates, though such rates are expected to rise as the year progresses. But he recommends that seniors ideally enter retirement without mortgage debt.

As he notes, some financial planners are biased against buying real estate in the years prior to retirement. After all, many planners (except those who work on a “fee-only” basis), make their living on commissions from the sale of investment products and insurance and not real estate.

But Tyson says people who’ve amassed a large war chest of retirement assets or who are entitled to benefits from a healthy traditional pension program, or both, may now be well positioned to buy the dream, second home they’ve long wanted.

“Preparing for retirement is not all about numbers. It’s also about having a great quality of life going forward,” he says.

(To contact Ellen James Martin, email her at