"Get Your Finances Ready for Retirement"-Putting A Permanent Plan In Place
Friday, April 10, 2009PAUL KANGAS: The message of this series boils down to this: when it comes to your retirement finances, you need a plan. Over their 25 reports, Joe Collum and Connie Hicks have led us through many aspects of the planning process. So what happens once you enter retirement? Connie and Joe say if your plan is well-designed, it should be fairly easy to keep it on course and in top condition.
COLLUM: This is what it's all about, the day you leave the office and officially become a retiree. And now it's time to make your financial transition by putting your retirement plan into effect.
HICKS: But that doesn't mean your work is finished. Now you have to focus on maintaining your retirement finances and that means doing regular check ups to make sure your retirement plan is running smoothly.
COLLUM: If not, you may need to make some adjustments. So now that you're retired, here's how to start your own retirement plan maintenance check. First, is your income in retirement actually in line with your expenses? Keeping those two elements in balance is crucial. And if they aren't, you need to ask yourself, is my retirement lifestyle too expensive? And if so, what can I do to make it more affordable?
HICKS: And that often involves taking a hard look at your living arrangements, by either relocating, downsizing or both. Author Fred Brock says living in a large house may not make sense.
FRED BROCK, AUTHOR, "RETIRE ON LESS THAN YOU THINK": You don't need a big house. I have some people say to me, well, I want a big house so when my grandkids come twice a year to visit, I have a place for them. Look, that's what hotels are for. You don't need to support a big house for somebody that's going to visit twice a year.
HICKS: Next ask yourself, are there other places where I can reduce expenses? If you've really cut to the bone, then the next question to ask is, can I boost my income perhaps by doing some form of work? Or maybe you'll think about starting a business. However if you decide to do that, financial planner Tony Proctor says be prepared to change course quickly if it doesn't work out.
TONY PROCTOR, CFP, PROCTOR FINANCIAL, INC.: There needs to be a reality check going in that says here's the limits of what I'm willing to put up on the table here in this new venture.
COLLUM: The next step in your check up should be to make sure that you're prepared to handle future needs. Have you looked into a Medigap insurance policy to help cover the many health expenses that Medicare will not? And what about long term care insurance in case you need to pay for assisted living or a nursing home? As Emily Brandon of "U.S. News & World Report" told us, those costs can quickly deplete a retirement account.
EMILY BRANDON, U.S. NEWS & WORLD REPORT: A private room in a nursing home is likely to cost about $76,000 a year. That's the national average. It varies from state to state, but that's about $209 a day for a nursing home.
HICKS: Even if you have insurance in place, remember that in retirement you have to expect the unexpected. That means you should have money set aside for an emergency fund. That can come in handy for such items as a special assessment from your condo association, as happened to Cindy and David Farah.
DAVID FARAH, RETIREE: Fortunately we had some money in the bank. You know, and we had heard that some of the people had to take loans out in order to pay the $5,000. So we were just very fortunate that we planned ahead.
COLLUM: If you're married, be sure that financial provisions are in place for your surviving spouse. That means having a plan to make up for a major drop in income that often occurs when the first spouse passes away. And if you're retiring as a single, don't forget to line up a backup person to handle your financial affairs if you're unable to do so.
HICKS: Because you want your money to last for the next 20 or 30 years, doing a financial check up every now and then is a good idea even if you haven't run into any bumps in the road.
COLLUM: And if you don't think you're equipped to evaluate your finances, get a qualified financial planner to help you. Information on how to find the right planner is available on our web site at pbs.org.
KANGAS: And joining me now in the studio are Connie Hicks and Joe Collum, along with "US News & World Report" retirement specialist Emily Brandon in San Francisco. Connie, over the course of this series, you talked with many retirees about their financial challenges. Was there anyone who made a special impression upon you?
HICKS: I think of Katie Richards. She's now in her mid-80's, she's very active -- plays pool, plays tennis, plays golf. But at the time that her husband died -- he was a retired pilot -- she had barely written a check or two and he hadn't planned for what happens after he had died in this case and she had a great deal of difficulty. So it was further proof you need to plan your retirement planning and your estate well in advance of someone getting ill or passing away.
KANGAS: Mm-hmm. And Joe early on, you profiled a retired "Washington Post" writer named Stan Hinden, who really didn't know much about retirement finances until he became a retiree. How's he doing these days?
COLLUM: Well, Paul, when I spoke to Stan Hinden and his wife, Sarah, it was March of 2008 and as we know, things have changed dramatically since then. We talked about the challenges of retirement then. Now the Hindens tell me - I spoke to them the other day -- and they tell me that their portfolio, like most of ours, has been savaged in the past year and they're having to live much more frugally -- no vacations, going out to eat less, you know, no new cars and they've stopped taking money from their IRA and their retirement portfolio, but are fortunate enough to have a pension and some other savings that they can live on in the meantime until their portfolio, hopefully, goes back up.
KANGAS: Mm-hmm. As all of ours will, hopefully.
COLLUM: Hopefully.
KANGAS: Emily, many retirees in a financial bind are thinking of staying at work longer. Is that a realistic way to improve their finances?
BRANDON: Several recent studies have found that it could take as much as two years in the work force just to recoup 2008 losses. But working longer, even though it doesn't sound like much fun, allows you to save more and reduces the amount of time over which that savings must be spread.
KANGAS: Emily, what about retirees thinking about looking for jobs to supplement their income? What should they keep in mind, in doing a job search?
BRANDON: Well, it's not fun for anyone to look for a job right now, but stick with it, try to stay positive and look for industries that tend to welcome older workers.
KANGAS: Joe and Connie, as baby boomers yourselves, what did you learn from this series that you'll use in your own retirement planning? Let's start with Connie.
HICKS: Well, you know, Paul, what I liked especially was one of the first certified financial planners that I met, who said to his clients, if you plan it right retirement is the best years of your life. And it struck me that we plan for college, we plan for a career, but Americans don't plan very well for retirement and it really should be the best years of your lives. And I just think if I've learned anything, it's a lot more planning.
KANGAS: Joe, how about you?
COLLUM: Paul, probably the best lesson that I got had to do with Social Security and when to take it. Surveys showed that as many as 80 percent of baby boomers plan to start taking their Social Security at age 62. But the longer you wait, the more money you will collect annually, 8 to 10 percent it will increase, your payments will increase year to year and so if you plan -- if you think you might have a long life span of 85, 90 years, it's probably better for you financially in the long run to start taking your payments later as opposed to earlier.
KANGAS: Let's hope our viewers will also put the lessons of this series into action. Connie, Joe and Emily, thanks for your work in putting together this project.
GHARIB: To learn more about the subjects covered in this program or to review any part of our "Get Your Finances Ready for Retirement" series, please go to our web site, nightlybusinessreport@pbs.org. You can also email us at nbr@pbs.org.
