2005 Year in Review

Your Retirement Challenge

Source: Karen Chan, Extension Educator Consumer and Family Economics; Countryside Extension Center; University of Illinois (708-352-0109)

Ask any worker over the age of 50—or any retiree—what worries them about retirement. The answer? Whether they will run out of money.

“It’s hard enough trying to figure out how much you need to save while you’re working. But it’s even harder to figure out whether your money will last long enough in retirement,” says Karen Chan, a Certified Financial Planner and educator in Consumer and Family Economics with University of Illinois Extension.

Chan recommends first getting a sense of your overall financial picture. “List your assets and debts. Then list your expected income, such as Social Security, pension, rental income, and interest or investment income. Track your expenses in writing for at least one month.”

Retirees may need to seek out ways to reduce expenses. Special offers available to any senior citizen include low- or no-cost bank accounts and restaurant specials. To find out about government programs that you may qualify for, visit the National Council on the Aging’s Benefits Checkup web site at Benefits Check-Up. Some programs are based on income and assets. The site includes information about the new Medicare Prescription Drug Coverage program as well as others.

Insurance can also be a budgeting tool. It turns large, unpredictable expenses into premiums that are easier to plan for. Long term care insurance, Medicare supplement insurance, and umbrella policies can remove the worry about potentially large financial surprises.

If you haven’t yet retired, learning to live on less now pays double benefits. Not only will you get a sense of what you really need to spend in retirement, but you will also be able to save more for retirement.

Workers make decisions at retirement that can affect their income for the rest of their lives. If you’re covered by a pension at work, ask exactly how your pension benefit will be determined. How are years of service calculated? Another few weeks or months on the job might make a difference in your retirement check.

When to start receiving Social Security benefits is another important decision. If you file to receive Social Security benefits before full retirement age (between 65 and 67, depending on your year of birth), your Social Security benefits will be permanently reduced. The younger you are when you claim Social Security, the greater the reduction. But by waiting, you reduce the number of years you’ll receive Social Security. Which choice is better depends on how long you live. Consider your current health and family history, and whether you simply need the income right away to live on.

Maybe you’re thinking, I’ll take my Social Security benefits early but I’ll keep working too. If you’ve reached full retirement age, you can earn as much as you like without affecting your Social Security check. But if you are younger, Social Security will reduce your benefit by $1 for every $2 you earn each year over a certain amount ($12,000 in 2005). You can earn more in the year you reach full retirement age.

An interactive net worth calculator and other tools to help with retirement planning can be found at University of Illinois’s free web site, Retire Well in the goal setting section.

by  Editor, theCity1.com
November 7, 2005