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Taking Responsibility for Retirement: How
Today's Scary Headlines Can Help Your Retirement Plan
First, it was the combined whammy of the tech wreck and the
post-9/11 recession that battered our 401(k) accounts. Next was
inflation in health care and education costs that further
diverted indebted consumers from concentrating on retirement.
Now come the headlines that any company facing tough times — or
intense shareholder pressure — can pull the rug out from under
its retirees hoping for the traditional three-legged stool of
retirement — pension, Social Security and savings.
All three legs are in trouble — we aren't saving enough,
Social Security is under attack and traditional pensions are
disappearing fast.
For retirees facing a sudden loss of pensions and benefits,
there are really very few options save going back to work or
turning home equity into a personal bank. So the time to start
taking on the lion's share of your retirement responsibility is
now, whether you're five, ten, or twenty years away from hanging it
up, if that's your plan.
One general tip: If you're not really certain where you
stand, get some help. If you've never sat down with a financial
adviser it may be time to get a second opinion on your
retirement readiness. The meeting may yield some ugly news, but
it's better to know the options than cross your fingers.
Here are some things you may want to discuss:
What does "retirement" mean to you? It's arguable that
traditional retirement is going to be dead for many of us. So
you may want to start thinking about a second part-time career
or new ways to earn.
Think about an annuity: Annuities are investments that
provide fixed or variable payments to the investor over a set
period of time. The collapse of traditional plans is putting new
focus on the annuity business, and it's worth talking about with
an expert.
Do a retirement spending dress rehearsal: In the last
few years before retirement, see how much you can live like
you're already retired. Give up the lattes and the pricey
clothes and dinners; see if you can live with a smaller car or a
used one. Retirement is easier if you can downshift into it,
both from a monetary and activity standpoint.
Get in shape -- physically: It may be strange to hear
health advice tied to your financial wellbeing, but it should be
one of the first things you consider. That's because the numbers
on a bathroom scale, blood pressure monitor or cholesterol
report can dramatically affect the cost of your healthcare and
insurance premiums going into retirement. You'll find that
pre-existing conditions can boost your premiums — or possibly
deny you coverage. That's a very ugly surprise going into the
years when you're going to need healthcare coverage the most.
Consider a career shift: It may be a bit extreme to
switch careers just because a particular employer has better
benefits and savings options. But if the job appeals to you and
you can make a move without endangering what you've already
accrued, why not consider it?
Use your catch-up options: Various IRA and 401(k)
options allow you to make additional contributions over standard
savings limits above the age of 50. Make sure you know what
those additional amounts are and take full advantage of them.
Don an investment inventory: In a 30-to-40-year
career, an individual may have gathered bits and pieces of
pension benefits and personal savings and investments along the
way. Likewise, there might be insurance policies, savings bonds
and other small investments that may have slipped one's
attention. A re-evaluation of retirement options should begin
with a full accounting and reorganizing of all investment and
savings assets, preferably in an organized outline that's easy
for you and your adviser to access.
Think about health savings accounts: Today, there are
strict limits and spending rules for health savings accounts,
but if some lobbyists get their way, there might be a day when
health savings accounts can become a long-term savings solution
similar to a 401(k) plan. Getting into the pre-tax savings habit
with health care dollars is a good habit to get into in case
there's more flexibility awarded to these accounts in the
future.
June 2006 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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