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Planning Issues to Address Upon Retirement

A new retiree would be well served to pay particular attention to these ten financial considerations that are so often overlooked at retirement.

Social Security Choices

Electing to receive Social Security benefits prior to reaching the "normal retirement age" can result in a reduction in benefits payable if earned income exceeds allowable limits for those years. The rude awakening for many will be that the "normal retirement age" becomes a moving target for persons born after 1942. Baby boomers should not assume that at age 65, earned income could be unlimited. That age limit is creeping up to age 67. A consultation with an experienced Social Security advisor will give the retiree insight into issues such as: (1) whether working a couple more years would increase the Social Security benefit materially; (2) coordinating the claiming of benefits for husband and wife; and (3) deferring the start of the benefit beyond normal retirement age because of income tax considerations or due to anticipated longevity.

Conversion to a Roth IRA

For wealthier retirees, serious consideration should be given to converting a traditional IRA to a Roth IRA. The conversion will generate income tax and be costly on the front end, but the ultimate savings to the family can be significant on the back end. A Roth IRA is not subject to the “required minimum distribution rules” so it can continue to compound tax-free during the remaining life of the account holder. If the ultimate beneficiaries are much younger, the tax-free compounding continues for decades while they withdraw minimal amounts during their lifetimes.

Re-thinking Life Insurance

Continuing to maintain a life insurance policy is often ill advised when the underlying basis for purchasing the insurance is no longer applicable. Policies that have a cash surrender value may be more valuable to the insured as an investment rather than locked in a policy with continuing premiums. An expert in analyzing life policies could evaluate the policy and warn the insured whether maintaining the policy is a bad idea.

Long-term Care Insurance.

Retirees making their budgets should always factor in an affordable amount for premiums on a long term care insurance policy. Purchasers of these policies generally don’t view the policy as “nursing home” insurance, but rather as a “stay out of a nursing home” policy. Such policies can pay for home health aides who will help postpone or avert that nursing home admission.

Asset Restructuring

Retirees spend a lifetime accumulating a plethora of different assets that become all scattered about. A goal in retirement should be to reduce the amount of time and attention necessary to maintain these assets. This will ultimately reduce probate costs and headaches for the family. Shed "nuisance" assets such as time-shares, undeveloped lots, smallholdings of stock certificates, and collectibles.

Fixed Income Vs. Total Return

Retirees become fixated on fixed income. Myopically focusing on just the annual yield of an investment fails to consider the total return that could be realized. Equities, such as stocks, may provide a smaller fixed income from dividends, but there may be an overall better gain when factoring growth in the equation. A savvy investment advisor would help balance a portfolio to maximize return.

Preparing for Incapacity

Sadly, persons with diminished mental capacity often lose a substantial sum because they succumb to others taking advantage of their mental state or inability to plan. Using such tools as a power of attorney, revocable living trust or setting up joint accounts can enable a trusted family member to perform an oversight function with asset protection. Simple first steps such as having duplicate bank statements sent to that child or enabling a child to view an account through Internet access can add a policing element to the estate plan.

Beyond Estate Planning Document Preparation

Just as important as having the will, power of attorney, and advance directive prepared is communicating with appropriate family members as to the existence and content of these documents. Family members should be given easy access to these documents in the event of emergency. Attorneys can serve this function as well.

Revamping Beneficiary Designations

Once beneficiary designations are made on retirement accounts, annuities, and life insurance policies, they are often ignored for decades. Since these designations “trump” the terms of a will, it is important to consider whether the beneficiary designation goes far enough with contingency planning. For example, if a child predeceases a parent, does the beneficiary designation specify correctly where that child's share of the account should pass?

Income Tax Review

The strategies for reducing income taxes can be entirely different in retirement. The tax code is infamous for making apparent deductions disappear when certain phase-out percentages are applied.


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Boomers Resource Guide is a special supplement to the Senior Citizen's Guide