Staying Independent In Your Older Years

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Staying Independent in your older years


Planning for financial independence in later life


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?


We 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.



"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 fulfil 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



The decade before retirement is a good time to take inventory of assets
and obligations and make financial choices aimed at maximising 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 ageing 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:

* What are our sources of retirement income and how much will each
provide-monthly or in a lump sum?

* Social Security

* Pensions, IRAs, Keoghs

* Savings and investments

* Sale of assets

* Home equity

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.


Professionals 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:

* List current expenses such as housing, food, health care,
transportation costs, and other financial obligations.

* Include a contribution to savings. Experts recommend a reserve fund
to cover 6 months of basic expenses.

* Itemise personal expenses for such things as clothing, travel,
entertainment, and hobbies.

* Develop habits such as price shopping, menu planning, coupon dipping,
and monitoring your use of credit to guard against overspending.

On the income side:

* Think through contingency plans in case expenses begin to outpace
income or one partner becomes seriously ill.

* Remember that credit histories in your individual names can be
invaluable in retirement, or in the event of widowhood or divorce. Credit can
be essential to meet unexpected or emergency expenses.

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 "authorised user" on your spouse's account.

* Consider selling assets or converting life insurance into cash as
another possible way to meet expenses.

* Investigate Home Equity Conversion (HEC) as an option if you own or
nearly own your home and need money. There are several kinds of home equity
conversion loan plans, including Deferred Payment Loans and Reverse
Mortgages, where you borrow against home equity and receive monthly or
periodic cash payments.

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 counsellor, other
financial advisor, or an attorney before deciding whether home equity conversion
is appropriate.


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.

* Wills--If you do not have a current will, the state, not you, will
decide how your assets are divided. Such legal documents as Living or
Revocable Trusts offer ways to avoid probate.

* Trusts--This device lets you decide who would be responsible for your
financial affairs if you became unable to manage them yourself.

* Powers of Attorney and Living Wills--Powers of attorney typically
assign responsibility for financial matters to another person. Some apply to
health care decisions as well. You can use a Power of Attorney or a Living
Will to state in advance your wishes in case of an incapacitating or
life-threatening illness. Doing so is essential if you want your family to
know the circumstances in which you wish to decline life-support measures.


Where to live after retirement is a major decision. Perhaps you plan to
relocate to a more favourable 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:

* Can we afford monthly payments for mortgage, taxes, utilities, and

* Will one or both of us be able and willing to take care of the house?

* Is the house a suitable place to live as we grow older and less

* Will we need to draw on our home equity as a source of income or
credit, or would we have more options if we sold the home and invested the

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:

* House-sharing for help with chores or added retirement income;

* Group living in a private home or one sponsored by a social services

* Accessory apartments, or mobile or manufactured homes, including ECHO
(Elder Cottage Housing Opportunity) housing which, if zoning laws permit, can
be installed on the property of an adult child or other relative;

* Condominiums or cooperatives which have the advantages of home
ownership without the burden of maintenance;

* Retirement communities which may offer companionship, recreation, and
sometimes medical and housekeeping services.


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

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


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.


For 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.

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