wishes if at some point they are unable to make decisions for themselves. Consult with an attorney to discuss or review wills, living wills, durable powers of attorney and health care proxies.
Activities—Employees wanting to stay involved in the community or looking for ways to gain personal satisfaction from activities will need to explore how they want to spend their newfound free time. Volunteering, traveling, pursuing hobbies or starting a business are all possibilities.
Setting goals and determining top priorities are two important steps to building any financial plan. For those who began retirement planning some time ago, circumstances may have changed, making it necessary to reevaluate previously established goals.
A financial plan must be created that balances three basic income needs: assured lifetime income, cost of living adjustments, and flexibility for unforeseen circumstances. For many public sector employees defined benefit pensions and Social Security benefits will probably meet their first basic income need, assured lifetime income. This income, however, usually will not provide any reserves for emergencies, and any cost of living adjustments (COLAs)—if available—are unlikely to keep pace with actual price increases in living expenses. This is where 457 plans, IRAs and other savings and investment income will come into play and provide the additional resources to address the other two basic income needs—COLA protection (to maintain purchasing power throughout retirement) and flexibility (reserves to respond to changing situations such as health care costs or financial emergencies).
It is no longer safe to assume that employees will enter retirement having paid off all of their major debt. Today, retirees may still be paying off their mortgage, car loans, educational loans or credit card balances. Debt management will be an important focus for new retirees. Making plans to pay off debt in the early years of retirement will free up money for later years. It is best to start with high interest credit cards first. Transfer balances from high interest cards to those with a lower interest rate. Then, set a realistic time frame for paying off the balance. Once credit cards are paid off, use them wisely. Do not charge more than can be comfortably paid off within one to two months.
Inflation will play a big role in retirement budgeting, as the costs for even the most basic living expenses will increase over time. Even those pension plans that provide for cost of living increases may not keep pace with inflation. Retirees need to stay ahead of inflation by planning to plan to cover their cost-of-living increases through retirement savings and investments.
Pension payment options will not only affect retirees but will affect their spouses, children and other dependents as well, so retirees will need to plan carefully when making decisions about plan distributions. For example, retirees should consider how household expenses and income might change when their spouse dies.
Although defined pension plans typically offer several payment options, retirees can usually choose only one. Once a payment option is selected the decision often cannot be changed. Therefore it is important for retirees to thoroughly investigate their options before making a decision.
Generally, pension plans offer at least the following two payment options:
Life only—This option pays a certain amount for life and gives the retirees the highest monthly payment. But, since the payments stop at death, spouses must give their consent to choose this option.
Joint and survivor option—Married retirees usually prefer this option as it pays a set monthly or annual payment for life and, at death, the surviving spouse will continue to receive at least half of that payment for the rest of his or her life.
Retirees also need to consider how and when they want to receive
benefit income from their 457 plans or other retirement savings and investments. Keep in mind that the combined payments from all