"An
investment in knowledge always pays the best interest."
 —
Benjamin Franklin.
Retirement Planning
To get the most
from your retirement years, there are some essential, basic plans
that should be achieved:
1. Financial
Plan The Financial Planning process analyzes your overall
financial position, e.g., incomes, assets, liabilities,
investments and life insurance, and with assumptions about the
rates of inflation and return, projects your finances into future
years. You will be able to vary some of the factors such as sale
of your residence, sale of other real estate etc., and see the
impacts on your income stream. Another benefit of Financial
Planning is to obtain an independent review of your investments
usually consisting of stocks, bonds, and mutual funds. Focus must
be given to your risk allocation in the form of growth versus
income (conservative). Many experts advise that the older we
become, the more conservative our investment mix should be.
Witness the 65% – 70% decline in the NASDAQ market during 2000 –
2001. How would that have impacted you had 50% of your portfolio
been allocated to high growth technology stocks? You need the
services of a professional Financial Planner for your Financial
Plan. You should ask for a reference from someone whom you trust
preferably a CPA or Attorney. Often, a fee-only Financial Planner
is recommended for the most likely independent, objective analysis
and recommendations. Some planners are employed directly by a
brokerage/investment/insurance firm. These firms may not charge
directly for the Financial Plan, but their objectivity may be
somewhat questionable. With the fee-only, you pay for the plan
(amount depends on complexity) but their objectivity is likely the
best. Be sure to contact some of their previous clients for
reference. The Financial Planning process will assist you with
other decisions you’re likely to be dealing with such as
relocation, house/condo, lifestyle, etc.
2. Estate Plan
Another key step to perform, as you approach retirement (if not
yet done) is to develop a current Estate Plan (with suggested
annual reviews). With the 2001 Tax Law, each individual can pass
$675,000 free of federal taxes. Beginning in 2002 the top tax rate
decreases to 50% from the current (2001) 55% rate for estates
valued over $675,000. I think we all would agree that these are
indeed, costly rates and can significantly reduce the value of
your estate for your spouse and loved ones ... if your estate is
over the $675,000 threshold. The prudent action to take is to
have an Estate Planning Attorney review your finances in the
context of Estate Planning. This is a very complex, technical area
and requires the expertise of an Attorney. The objective of Estate
Planning is to see that your wishes are carried out (disposition
of assets) and to minimize the tax bite via various options of the
Estate Planning menu. Other parts of Estate Planning will include
the implementation or update of your Will or Living Trust, an
Executor of your estate Durable Power of Attorney, Durable Power
of Attorney for Health Care, and a Directive to Physician. These
steps are advisable/necessary regardless of your estate value.
Again, ask for the name of an Estate Planning Attorney from
someone whom you trust such as your CPA or Attorney. Check their
references, and don’t procrastinate! If you have an Estate Plan
when you relocate, have an Estate Attorney in your new state
review the plan for any changes necessary for differences in state
laws.
3. Relocation
Decision Essentials The relocation decision is very personal,
sometimes emotional, and based largely on your future financial
needs. The Financial Plan discussed above will identify your
monetary needs to maintain your specified life style, e.g., remain
where you are, relocate to a state with lower income taxes and
general cost of living, live in a condo, rent, etc. Your
retirement and projected investment incomes will also be presented
so that you can compare your projected living expenses and income
levels based on various assumptions. Needless to say, there are
other factors that should also be considered. For example: ?
Proximity to family and friends ? Your current level of
satisfaction where you currently reside, e.g., cost of living,
climate, crime, transportation access, urbanization, etc. ? How
long will you be physically capable of maintaining your current
home, e.g., lawn, repairs, etc.? ? Whether you will require the
cash from sale of your home to assist with your projected income
needs throughout your retirement If you decide to relocate,
establish some search criteria for your new location. Such
considerations would likely include: ? House versus condominium
or apartment ? Assisted-living accommodations ? Attractive state
income tax provisions ? Proximity to quality hospital and medical
care ? Availability of university adult education ? Cultural
events programs/activities ? Organizations for meeting new people
? Public transportation access Only you can assign the weights
(importance) for each of these factors in your decision. At least,
by addressing such criteria, you increase your chances of a
positive, healthy result. We strongly suggest that once you
decide to relocate, rent an apartment for at least 1 – 2 months in
your selected area before you sell your residence. This stay will
give you an up-close and personal view of actually living there.
If you decide to stay, then sell your current residence.
Otherwise, return to your residence as a fallback. Take this
opportunity to review local real estate; visit colleges to learn
about their offerings and senior programs/cultural events; visit
the local hospital to determine their departmental
strengths/weaknesses; become familiar with public transportation,
and other areas of specific interest.
1. Social
Security and Medicare
The U.S. Social Security Program was enacted in 1935. Currently,
more than 45 million people, or one of every six Americans,
collect a Social Security benefit each month. Although Social
Security was never intended to be a retiree’s only source of
income, it provides 50 percent or more of total income for
two-thirds of the beneficiaries and 90 percent of all income for
30 percent of the beneficiaries.
During your employment years, you paid FICA taxes for which you
earned social security credit. The number of credits needed for
benefits depends on your year of birth. If you were born in 1929
or after, you need 40 credits and people born prior to 1929 need
fewer credits (34-39). The FICA or social security taxes that are
paid are dispersed into three trust funds:
*Old Age and Survivors Insurance (OASI), which funds retirement
survivor/dependent benefits;
*Federal Disability Insurance, which pays benefits to people who
have become disabled and to their families;
*Federal Hospital Insurance, which pays for services under
Medicare’s hospital insurance.
In 1999, the Social Security Administration (SSA) began mailing
statements to all workers age 25 and older, who are not yet
receiving benefits. The statements include your annual earnings
and estimates of your future monthly retirement, disability, and
survivor’s benefits. You should review these statements to ensure
that the annual earnings posted throughout your earning years are
accurate, as they are the basis for your benefit calculations.
Contact the SSA with any questions about the statements, or if you
have not received a statement.
The earliest age to begin collecting social security benefits is
62. However, if you elect to begin benefits at 62, benefits will
be lower than if you begin at a later age. Nearly half of those
eligible for benefits begin at age 62. This decision is personal
depending on your financial circumstances but, your SSA statement
reflects the estimated monthly benefits for ages 62, 65, and 70 to
help with this decision.
In 2000, earnings limits triggering benefits reductions were
eliminated for social security recipients age 65, or older. This
is quite positive since recent surveys reflect that more and more
people expect to work longer into their retirement years. There
are some income limitations for those younger than 65. Social
Security benefits are not automatic; you must apply at least three
months before you wish benefits to begin. Call 800-772-1213, or
visit the SSA website at www.ssa.gov
for application details, or any further questions.
2. Medicare
Medicare, the health and hospitalization insurance for the elderly
and disabled, is available to almost all Americans. It is
administered by the Health Care Financing Administration (HCFA),
but SSA offices take Medicare applications and assist with filing
claims. Also, Medicare premiums are deducted from your Social
Security benefits checks.
Medicare offers hospital and medical insurance beginning at age 65
and again, you must apply for the program. Failure to apply at age
65 can cost you higher premiums later on. Even if you are covered
by private insurance, you should still register for the Medicare
insurance. Many private insurance carriers and companies require
that people they cover to enroll in Medicare. The private
insurance and Medicare plans are then integrated for your
coverage.
Medicare Hospital Insurance assists with cost of:
*Inpatient hospital care
*Skilled nursing facility care
*Home health care
*Hospice care
Medicare Medical Insurance helps pay for:
*Doctor services
*Outpatient hospital services
*Home health visits
*Diagnostic x-ray, laboratory services
*Necessary ambulance service
*Other medical services and supplies
What Medicare doesn’t cover:
*Custodial care
*Dentures and routine dental care
*Eyeglasses, hearing aids, related exams
*Nursing home (except for skilled nurse)
*Prescription drugs
*Routine physical exams/related tests
The Medicare hospital insurance is free to those who are eligible
for Social Security benefits. The monthly premium for year 2000
was $45.50 for the medical insurance. Contact the SSA or HCFA to
confirm this content, or for other inquiries, especially
concerning services covered/not covered, as these areas are
subject to change.
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