Paving Your Way Toward Retirement

Several Strategic Steps

Tasks include test runs, deciding where to live, arranging healt care

Goal No. 1 in retirement planning: Build your nest egg. But there's more to preparing for a rewarding retirement than saving money.

Before you turn off your alarm clock for good, here are some choices you should start to make:

Location. Where will you live? You may want to move to a smaller home. That might be less costly and demand less maintenance. And you may be able to free up cash by selling your larger home. You might even relocate to another area. Reasons include moving closer to relatives or seeking better weather. You may also aim for a location with lower taxes. Visit any area you're considering. Consider spending a few weeks in your intended destination. Check out everything from housing to resources for health care and recreation. Does the locale have the type of church, synagogue or mosque you prefer? If you're thinking about moving into a retirement community, meet some residents. Some communities have guest quarters. Stay a while and see if you'd like to live there.
Health care. How will you pay for health care? Medicare, the federal health insurance program, generally won't accept you until age 65. If you retire before then, you'll need some coverage. You might get family coverage through a spouse who's still employed. Or you might get health insurance by joining an organization. AARP, for example, has a health plan that's available in about half the states. You can shop for individual health insurance at Web sites such as eHealthInsurance.com. Some insurers have policies that are designed for pre-Medicare coverage. COBRA, a federal law, provides another option. When you leave a job where you had health insurance, your employer generally must allow you to maintain the coverage for up to 18 months. But you have to pay a portion of the cost. That might be more than you paid as an employee. And administrative charges can add another 2% to your premiums.
Medicare. Which option will you prefer? At 65, you can go on Medicare. You'll have several choices to choose from. The original Medicare plan lets you choose your own doctors. But you'll have to pay 20% of the bills. You may have other medical costs, too. Medicare generally does not cover things like prescription drugs, for instance. That's why many people buy a Medigap policy. There are seven basic types. The most comprehensive cover hospital and medical deductibles and coinsurance, foreign treatment, at-home recovery and extended stays in skilled nursing facilities. That's also why people pony up for a prescription drug plan. You can join a Medicare plan offered by a private company instead. They include HMOs and PPOs. Plans like that often offer inexpensive visits to doctors and some drug coverage. That avoids the need for a Medigap policy or a drug plan. So, your costs can be lower. You may face restrictions on the doctors and hospitals you use. Check rules of local plans. See if you'll be comfortable staying within the limits of a lower-cost plan.
Social Security. When will you start? You can begin to receive retirement benefits as early as 62. But that will lock you into receiving relatively small checks. Suppose you were born in 1948. You reach 62 in 2010. Your normal retirement age is 66. That won't be until 2014. Say you would get $1,000 a month from Social Security if you retire in 2014. That's based largely on your income history. But if you start in 2010, you'll get only $750 a month. People who have stopped working often start their benefits as soon as they can. The added income is crucial. But some people have generous pensions or investment portfolios they can tap. If you can wait, the monthly checks get larger. That's true until age 70. Starting later won't increase your payments.
Retirement plan. For many retirees, the money in a 401(k) account is a prime asset. You can roll the money into an IRA. That will maintain the tax deferral. And you'll control the investment decisions for that account. Some employers let members keep money in the plan. That will relieve you of some money mangement responsibility, but fees and limited investment choices are drawbacks to this option. You can borrow from some 401(k) plans. IRAs don't make loans. And money in an employer's plan can enjoy more creditor protection than an IRA provides.
Starting withdrawals. Will you need to tap your retirement fund before age 59 1/2? You might retire before that age and need money for living expenses. In that situation, you probably are better off keeping your money in a 401(k) for a while. After age 55, withdrawals from former employer's plan won't trigger a 10% penalty tax. Withdrawals from an IRA generally are not pernalty free until 59 1/2.$

Ray Buckner (Chicago, Illinois) provides personal financial planning and wealth management services for professionals in the greater Chicago metropolitan area. His primary focus is serving pre-retirees who are preparing for a successful retirement as well as those who have already retired and want to develop a 100% retirement income personal paycheck. His pre-retiree clients want to focus on replacing 100% of their last year's income and keep their current standard of living through out their retirement adjusted each year for inflation.
www.promoneyreports.com/rbuckner