Steps Every Boomer Should Take Before Leaving the Workforce


“The Boomer” is a column written for adults nearing retirement age and those already in their “golden years.” It will also promote reader interaction by posting e-mail responses and answering reader questions. E-mail your questions or topic ideas to

It’s a day that most of us have been dreaming of for years: leaving the workforce and entering into the golden years of retirement.

Retirement is an exciting time, but experts warn there is a lot of research and calculations that must take place before leaving the workforce. I will be turning 62 this month—and face many financial decisions that can impact my retirement funds: Should I take my Social Security income now, or wait until my full retirement age? What happens to my finances if I unexpectedly pass away?

But for many of us baby boomers, we have not adequately saved for retirement. Some of us lost our home equity when the housing market crashed in 2008, while others watched their 401(k) tank when the stock market subsequently plummeted.

But here we are, close to four years later and the stock market is hovering around 13000. What does that mean for boomers gearing up to leave the workforce? I spoke with Jim Sloan, president of Jim Sloan & Associates in Houston, and author of The Financially Informed Boomer, and he offered the following six tips of what boomers need to know before leaving an employer.

1. Understand your retirement plan options. Know whether you should cash out your retirement plan and do a direct rollover to an IRA, or leave the plan at your employer.

Cashing out a retirement plan altogether is, for the most part, a bad idea for most boomers. When a plan is cashed out, 20% is going to be withheld and set aside for tax liability immediately. For a baby boomer getting ready to retire, they get that rollover check and have 60 days to deposit that cash along with that other 20% to deposit into an IRA. If they don’t do this, they are going to be responsible for that taxable amount.

Most boomers don’t want to cash out of their retirement plan; the easiest thing to do would be to roll it over to an IRA or another 401(k). Many employer-sponsored plans have very limited choices of mutual funds. If they roll their money from a 401(k) to an IRA, they may have better flexibility and additional choice of options.

Many employers give their employees a list of investment choices and leave it to them to decide on their selection. For someone who has very limited investment experience that could be a costly mistake.

Some boomers may not want to roll their 401(k) to an IRA if they have company stock because they could lose some significant tax advantages that would not be made up with the rollover. People who took a loan from their 401(k) may also not want to roll over. A loan not paid off would be deemed as a distribution from the plan and you would have significant tax penalties.

2. Have a sound plan for your income stream.

Boomers need to know their income source for the rest of their life. Pensions are great, or a 401(k) plan that is rolled over to an IRA.

When it comes to generating income for retirement, there are two types of income: maybe and guaranteed. “Maybe income” is when you put money in investments and hope the market does well. “Guaranteed income” is when you use a lifetime-income rider from an annuity vehicle so that you have guaranteed income for the rest of your life and the rest of your spouses life if you do a joint option. You have to decide what type of risk you are willing to take.

A lot of people want the guaranteed income to avoid having to stomach any market swings. There are other ways to generate income with a dividend-paying stock or laddered bond maturities. There are some institutional asset managers that are generating 5% to 7% net of fees for income.

3. Know your optimal age to begin taking Social Security benefits.

After being in this business for 15 years, I can tell you this is the area where people make a lot of mistakes.  Too many boomers are guessing their optimal age for starting to take Social Security benefits.

Ideally, you want to defer or delay receiving Social Security for as long as possible because it continues to grow, and there is a penalty if you take it early. For most boomers, 66 is the full retirement age, but if you can leave it alone from 66 to 70, it grows at 8% per year. There is an 8% delayed credit from ages 66 to 70. Everybody has a unique financial situation, so there is no one size fits all here.

If you have other sources of income to maintain your lifestyle, it is advisable not to take Social Security until you are of full retirement age. If you can wait, it is much better than taking it early, especially if you are married. If a husband and wife turn 66, and the husband decides he is not going to start his Social Security because he is the higher wage earner, his wife can begin hers and he can begin a spousal benefit.

For example, if her benefit is $1,200 a month and his is $2,000 a month at age 66--he delays taking his benefit, and she starts hers. His spousal would be half at $600 a month. At age 70, he now switches to his higher monthly benefit of about $2,700. By delaying, he now has a higher benefit. Maximizing Social Security income is also a sound financial decision because if a spouse dies, the survivor benefit would be maximized as well.

4. Know your investments.

You should know if your investments are market sensitive or whether you need to have more risk-adverse investments.

One of the most alarming issues we see is that most people are unaware of what fees they pay, and many people are paying 2-3 times more in fees than they thought. Many mutual funds have undisclosed fees for actions like buying and selling, and mark ups and mark downs. With variable annuities, you can expect 3%- 4% a year in fees.  

5. Know the difference between a brokerage firm and an advisory firm.

A lot of baby boomers don't understand the difference between a broker and an advisor. A broker is someone who sells something for a commission,  and sells products like  mutual funds, variable annuities, etc. An advisor provides investment recommendations.

Brokers and brokerage firms don't have a fiduciary standard to the client, they only have a suitability standard to the client. That means whatever they recommend must be suitable for you, but it doesn't have to be in your best interest.

On the other side, an advisor has a fiduciary standard to the client. What an advisor recommends to the client has to be in their best interest.

6. Seek wisdom and advice and get a second opinion.

Sometimes getting a second opinion about your current investments and retirement plan will help you know whether you are on the right track to a sound retirement.