Retirement

by David L. Danzig

Time to get back on track

Sometime around the age of 50, we start to think more seriously about retirement. After the kids (if we have them) are out of the house, or at least relatively self-sufficient, we are at the peak of the earning stage of our career, and thoughts of soon having time for whatever we please are becoming even more pervasive. Unfortunately, those thoughts are often interrupted with anxiety and doubt!

Perhaps you fell off track. You had intended to save more, but just did not have a solid plan in place or the extra money to follow through with your plan. Intentions are commendable, but if life has gotten in the way of saving, there is no time like the present to get back on track. Many think they have "missed the boat," but it’s not too late if you act quickly.

In order to have a well-rounded retirement in which you can maintain and protect the lifestyle you and your family have become accustomed to, five key areas must be addressed:

1. Income management
2. Protection
3. Healthcare
4. Long-term care
5. Leaving a legacy

Income management

The income you will need depends on the lifestyle you have become accustomed to, as well as the lifestyle you plan to lead. Will you relocate? What activities will you pursue? Will you work part time, or not at all? These are key variables that need to be addressed in addition to overall lifestyle.

Typically, retirees need to replace all of their pre-retirement income. Remember that most people with time on their hands spend money on entertainment. Over time, inflation will begin to take its "bite" and retirement dollars will not go as far. One of the primary mistakes made in planning long-term income is not taking inflation into account.

Social Security will help meet part of your needs, but the larger your income, the smaller the check from the government will seem every month. To create adequate cash flow, all avenues must be utilized. Qualified plans, such as 401(k) and IRA’s, as well as pensions, deferred compensation plans, golden parachutes or buyouts must be accurately accounted for. Keep in mind that in the 401(k) for 2007, $15,500 can be tax deferred (unless restricted) as well as a $5,000 catch-up if you are over 50 any time this year including birthdays of December 31!

Additional investments and/or annuities will also generate further income. The most important factor when looking at multiple investments and the money that will be generated from them will be the tax implications. Be sure to have your tax advisor assist you regarding where money should come from and when.

Protection

Protection becomes increasingly important over time. If you have a spouse or dependants, the question to ask is: "What will become of them if something were to happen to me?" Their future should be protected.

Oftentimes, after one spouse dies, the survivor’s cost of living remains nearly the same. The mortgage and taxes still need to be paid, food is still purchased and utilities are still used. In some cases, certain tasks must now be outsourced due to convience. Laundry, cleaning and handyman-related situations are normally "farmed out" at considerable expense. In some situations, the survivng spouse can lose a substantial portion of his or her retirement income following a death.

Review your pension, IRA and qualified plan documents carefully. There may be options that guarantee income for a period of time or for life. Finally, be sure your life insurance needs are met and up-to-date. If structured and written correctly, life insurance is a tax free benefit to the beneficiary. Be certain that it is funded properly; too many times a policy collapses at a time when it is becoming a necessity (i.e., between the ages of 75 and 80).

Healthcare

Although everyone hopes for the best when thinking of their health, the truth is, your health during retirement life is unpredictable. At age 65, you will qualify for Medicare. Although some companies still offer retirees health coverage, over time, they have become few and far between. Medicare will most likely be your only option. If you plan to retire before 65, Medicare is not available, so make sure you have made arrangements to purchase healthcare to close this gap.

Remember, Medicare does a good job insuring our country’s seniors, BUT, it does not cover everything. There are out-of-pocket expenses as well as areas that are not covered such as vision, dental, hearing and podiatric, just to name a few. In today’s climate, reports have been issued stating the average senior can expect to spend 27 percent of his or her income on healthcare. Obviously, the larger your retirement income, the smaller the percent, but it will certainly remain significant. Therefore, just as inflation will take its “bite,” so will healthcare. The older you get, the greater the chance your healthcare expense will be significant.

Long-term care

As we age, there is an increased probability that we may eventually need assistance with the activities associated with daily living. This type of care does not come cheap, regardless of whether it’s in-home or at a facility. Medicare does not cover long-term care, and most of us can not afford to pay out-of-pocket for extended periods of time without depleting our nest egg. Many pre-retirees are looking into long-term care insurance policies. These policies, available for individuals between the ages of 55 and 65, can be purchased at affordable rates and can insure a lifestyle changing event.

Leaving a legacy

Finally, there is the issue of legacy. Even if you have fallen off track with regards to your own future, it is never too early to speak with your advisor about transferring assets upon death. Whether you intend to pass your assets to relatives, friends or a charity, there are a variety of tools that can be used including trusts, living trusts, charitable remanded trusts and charitable gift trusts. Your will is the "map" of your wishes and will guide your estate through probate. Tax laws seem to change more frequently so it is imperative that your will is kept up-todate in order for you to take advantage of all changes in the law.

When it comes to saving for retirement, there is no time like the present. The longer your investment horizon, the longer your money has to work for you. Remember the law of 72. Seventy-two divided by any interest rate will tell you how long it takes a lump sum to double. Time is working against you as you age. Determine a strategy, stick to it, get the assistance of professionals and save. Before you know it, the anxiety you are experiencing regarding retirement will be turned into confidence and you will know you are on the proper track.