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STAYING INDEPENDENT . . . Planning for financial
independence in later life

TAKING STOCK

As 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?

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 AHEAD

The 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:

Find out all the options for receiving your pension benefits and whether they are insured. Find out if pension benefits will be reduced if you receive Social Security. Read carefully and consider the consequences of signing any documents relating to a reduction in spousal pension benefits. One of you may need this income if the other dies.

When estimating how much income can be expected from these and other sources, remember to take inflation, taxes, and market fluctuations into account. Depending on your anticipated income potential, you may decide to postpone retirement a few years, or plan to work part-time.

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 OWE

Professionals say that retirement income should be 60-80% 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:

On the income side:

Federal regulations prohibit age and gender discrimination in the granting of credit. Lenders must treat all income alike, whether from employment, retirement benefits, or other reliable sources. Still, it may be easier to get a national credit or charge card in your own name while you are employed. If you have never been employed, you can still build a credit history by becoming an "authorized user" on your spouse's account.

Unlike home equity loans or lines of credit, reverse mortgages involve no monthly repayments as long as you live in your home or until a predetermined date. These plans do involve costs for application fees, closing costs, and interest, and they may affect eligibility for public benefits programs such as Medicaid. Generally, you can decide how to spend the money. Reverse mortgage plans are not all the same, so it is important to read the loan documents carefully. Check with a trained HEC counselor, other financial advisor, or an attorney before deciding whether home equity conversion is appropriate.

LEGAL MATTERS

You 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 PUT

Where 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:

In addition to owning a home or renting an apartment, a number of other housing options may be available in your community, many of which offer savings on housing expenses. These are some alternatives to consider:

SPECIAL CONSIDERATIONS

An 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 INDEPENDENT

It'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.