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STAYING INDEPENDENTPlanning for financial independence in later lifeTAKING STOCKAs retirement approaches, it is important for every household to assess its financial identity (assess its finances). Waiting too long might mean missing one or more opportunities to preserve maximum financial independence in the future. To help get you started, can you say "Yes" to the following statements?YES NOWe talk regularly and frankly about finances and agree on our goals and the lifestyle we will prefer as we get older. We know our sources of income after retirement how much to expect from each, and when. We save according to plan and are shifting from growth-producing to safe income-producing investments.We know where our health insurance will come from after retirement and what it will cover. We have reviewed our life insurance and considered options such as converting to cash or investments. We each have our own credit history. We each have a current will or living trust. We know where we plan to live in retirement. We have anticipated the tax consequences of our retirement plans and of passing assets on to our heirs. Our children or other responsible relations know where our important documents are and whom to contact if there are questions. We have executed legal documents, such as a living will or power of attorney, specifying our instructions in case of death or incapacitating illness. THE KEY IS PLANNING"If only I'd known then what I know now ...." Looking to the future is key to financial planning at any age, but especially in the decade or so before retirement. For many households, retirement is a time to fulfill dreams and delayed ambitions. It also can be a time of anxiety if you postpone thinking realistically about the ways your financial identity will change--income, savings, investments, credit, insurance, job benefits, and perhaps living arrangements. Meeting the challenge of financial management will help remove uncertainty and increase your available options. Both partners need to be involved in retirement planning and may wish to discuss their plans with adult children.Many people neglect planning. Some prefer to leave financial decisions to the other partner, while others simply find it too difficult to talk about money. Whatever the reason, if you have not yet begun planning, you may want to seek pre-retirement planning advice from a professional or a community service organization. LOOKING AHEADThe decade before retirement is a good time to take inventory of assets and obligations and make financial choices aimed at maximizing future resources. These years are typically a peak earning period and they offer the chance to reduce major debts, such as a home mortgage, and increase savings and income-producing investments. Households faring the combined expenses of educating children and caring for aging parents may find saving difficult during pre-retirement years. In these cases, making a realistic financial appraisal is more useful. These are questions you might ask yourselves:
* Is our health insurance adequate for retirement? The cost of serious or long-term illness is a major burden for many older Americans because Medicare does not cover all health care costs. If you consider buying "medigap" insurance to supplement Medicare, shop carefully for a policy that supplements rather than duplicates Medicare coverage. Long-term health insurance for nursing home or home health care is new. Examine all the terms of any such policy before you buy. MANAGING WHAT YOU OWN AND WHAT YOU OWEProfessionals say that retirement income should be 60-80 percent of current income to maintain the same Standard of Living. If your financial picture does not correspond to this guideline, you might prepare a budget and a cash flow statement based on income and expenses during the preceding 6 to 12 months in order to identify gaps in income and find ways to cut spending.On the expense side:
LEGAL MATTERSYou can use several legal tools to maintain control over your affairs in later years. These will enable you to decide, while healthy and alert, what you want done in the event of death or disability. Be sure to discuss any arrangements with your survivors to save them from facing difficult decisions and to give them peace of mind, knowing they are complying with your wishes.
RELOCATING OR STAYING PUTWhere to live after retirement is a major decision. Perhaps you plan to relocate to a more favorable climate or to be near family. Research the consequences of such a move in terms of the basic cost of living, access to health care, and state and federal tax obligations.If you are considering the advantages and disadvantages of selling your home, whether or not you plan to relocate, these are some questions to ask:
SPECIAL CONSIDERATIONSAn important part of financial planning is anticipating how to handle bad times. Prudent planning includes learning about public and private benefits programs. In most communities, governmental and private agencies offer services to help care for older persons, such as low-cost medical clinics, home health care, housing options, adult day care, and chore services.The local Social Security Administration office has information about entitlement programs such as Medicaid, disability insurance, food stamps, and Supplemental Security Income. Ask about your state's Medicaid "divestment" rules which permit transfers of some assets to other people if done a specified length of time before applying for Medicaid (usually at least three years). Divestment is a precaution some take to avoid "spousal impoverishment" when all the family's assets are spent before a sick family member can be eligible for Medicaid assistance. When arranging family matters, it will ease your survivors' emotional burden if you let them know your preference for funeral or memorial arrangements. You can handle these matters yourself by planning through a non-profit cooperative memorial society or by prepaying at the funeral home of your choice. If you decide to pre-pay, be sure you or your survivors can cancel the contract should you move or change your mind. Planning ahead and using comparative shopping skills can save thousands of dollars in funeral expenses. PLANNING TO STAY INDEPENDENTIt's never too early to start retirement planning, and never too late to make adjustments in your financial situation. Whether wealthy or not--and it is probably more important for those who are not--investigating your options and making practical choices now can allow you to stay in charge and meet future financial goals.FOR MORE INFORMATIONFor additional information and brochures...Consumer Information Catalog Pueblo, CO 81009 Cooperative Extension Office--local office is listed under State, Federal or County Government in the phone directory American Association of Retired Persons Consumer Affairs, Program Department 1909 K Street, N.W. Washington, DC 20049 (202) 728-4355 Federal Trade Commission, Public Reference 6th and Pennsylvania Ave., N.W. Washington, DC 20580 (202) 326-2222 National Foundation for Consumer Credit 8701 Georgia Avenue, Suite 507 Silver Spring, MD 20910 (301) 589-5600 American Council of Life Insurance (ACLI) 1001 Pennsylvania Avenue, N.W. Washington, DC 20004-2599 (202) 624-2455 Health Insurance Association of America (HIAA) 1025 Connecticut Ave., N.W. Washington, DC 20036-3998 (202) 223-7780 Continental Association of Funeral and Memorial Societies, Inc. 7910 Woodmont Avenue Bethesda, MD 20814 (301) 913-0030 This is one of a series of brochures about building and maintaining a financial identity--both as an individual and as a partner in a two-income household. The series is about selecting and using financial services and service providers. It covers credit, investments, financial services, job benefits, and financial planning. |
