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.
STEP TWO: TAKE STOCK OF
THE SITUATION: DEFINE OR REEVALUATE GOALS
THE SITUATION: DEFINE OR REEVALUATE GOALS
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).
CREATE A DEBT
MANAGEMENT PLAN
MANAGEMENT PLAN
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.
PLAN FOR INFLATION
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.
ANALYZE PENSION PAYMENT OPTIONS AND TAX
IMPLICATIONS
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
benefit income from their 457 plans or other retirement savings and investments. Keep in mind that the combined payments from all
