Consumer Survival Kit; 221; Retirement Planning

Retirement planning. Consumer survival kit number two hundred and twenty one the Maryland Center for Public Broadcasting. Server for Public Broadcasting. Hello I'm Larry Lohmann. Like most Americans you're probably too busy to think about retirement especially if it's years away. But consider this your retirement could easily last as long as 20 years and without careful planning these years can be a difficult time. This week will show you how to plan for a comfortable

retirement. We'll take a look at the steps you can take now to finance it. We'll have some tips on deciding where to live including retirement communities and mobile home parks reify can will introduce you to some pension rights you may not know you're entitled to. Bob Smith will explain what to do if you're not enrolled in a pension plan. And friend Joe Hanson will present our survival kit. But the first point to make about retirement is that there's no such thing as planning too early. What's the matter Fran you live now. I am down. I just realized I'm almost thirty two. Come on you can't control your rage. That's like getting depressed because you haven't won the lottery. That's depressing to Marge you remember. I was going to be independently wealthy by 30 I'm supposed to be retired by now. How are you supposed to know the world wasn't ready for your electric toenail Bufferin

polisher. Same for the electric fork and the microwave hair dryer. What I promised myself and you too. I know I was supposed to be dripping with emeralds and rubies by now. Maybe we should be more realistic. Yeah I guess I'll have to retire at 65 like everyone else. Get a little place in Florida. Go fishing swimming. Now how are we going to do that. Like everyone else I guess everyone else has to plan for retirement and most of them have a regular job pension retirement benefits. What are we going to do. I got a great new idea. Oh no not again. The pythonic rock for short to sell. If I can get it out by next Christmas we can be retired by next year. Real ism is important in my time and planning and the sooner that planning starts the better. Let's see how prepared you are. Number one monthly Social Security benefits are higher if you retire at

65 instead of 62. True or false. Number two you'll probably need some individual health insurance coverage during retirement. True or false. Number three when you die the law requires that your spouse receive your full pension benefits. True or false. Now let's see if you are surprised by the answers. Number 1 is true. Monthly Social Security benefits are higher if you retire at 65 instead of 62. But that doesn't necessarily mean you're better off retiring at 65. The three extra years of payments you get by retiring early usually make up the difference between a reduced benefits and what you would have received had you waited until 65 to retire. For many retirees that difference isn't worth the three year wait. But Social Security benefits shouldn't be your only consideration when you're deciding whether to retire early. In fact Social Security benefits are intended to be only supplemental retirement income. The first thing to determine about your retirement early or otherwise is how to finance it. Much more on that later. Number

two is true. You probably will need some individual health insurance coverage during your retirement. If you're covered by a group medical insurance plan where you work chances are your coverage will stop when you retire. A Medicare cannot be counted on to provide the coverage you'll need either although it can help if you have group coverage where you work. Check to see if it's convertible to individual coverage when you reach retirement age. Some group policies are. Once you convert to individual coverage your policy may be designed specifically to supplement Medicare. That's a plus. At the very least look for coverage that will protect you through your retirement years. And by the way if you decide to retire before 65 keep in mind that Medicare coverage doesn't begin until then. Make sure your medical insurance covers the gap. Number three is faults when you die the law does not require that your spouse receive your full pension benefits. It does require that your spouse receive at least 50 percent of your pension benefits if you select this option. These are called survivor's benefits and if you

opt for them you will probably receive lower benefits while you're both alive. The choice is yours. Until recently pension plans were not required to offer this provision. Federal law now requires a number of pension safeguards among them full disclosure. In simple English what your plan entitle you to do avoid disappointment when you retire now is the time to take a thorough look at. There are. Some 30 million workers in private industry are counting on their employers to provide them with a regular pension check after they retire. In the past many of them suddenly discover themselves without that security they had counted on. Some workers woke up to find themselves without jobs after 20 or so years with the company. No joblessness no pension benefits either. Then there were those whose companies went bankrupt leaving them with pensions. In 1974 Congress responded to these and other problems with the pension reform act which is effective as

of 1976. Critics say the new law isn't perfect but it does set minimum standards for all private and union pension plans. As a result many workers now have more pension security than ever before. For one thing pension plans are now easier to join especially for young people just starting work. And for people in their 50s who changed jobs previously both these groups were often ineligible. Another key provision is that the pension credit you've earned are fully guaranteed or vested after no more than 15 years fully vested credits are yours to keep. No matter what you are entitled to at least 50 percent of your benefits after 10 years after that even if you quit your job to take another one so your old employer still has to give you at least half your benefits when you retire. When you leave a job your vested credits go with you. If you're old and new employers agree you may transfer your credits to your new employer's plan.

Or you can set up your own retirement plan called Individual Retirement Account. I are a well have more on these options later. What if your company goes out of business or drops its pension plans a new public corporation insures your vested benefit right. Much like FDIC insures your savings will pay you if your company can't up to eight hundred fifty dollars a month. Another plus as we've said before is that your spouse can get at least 50 percent of your benefits when you die. Critics of the law are quick to point out some important things it doesn't do. For instance you can take your non vested credits from one job to another. That's bad news for 73 percent of the people who leave jobs before they meet the time requirement for investing. The law doesn't set a minimum floor on benefits either. The average pension payment today is only $900 a year. Nor does the law all require a company to provide a pension plan at all. In fact some

companies have terminated their plans rather than conform to the new requirements. But even if it has flaws the new pension reform law means a more secure retirement for millions. You don't have to depend on your employer to set up a pension for your retirement. You can set up your own with an individual retirement account an IRA. If you're not participating in any pension plan because your employer doesn't have one or you don't stay with any one company long enough to become fully vested. An IRA may be worth looking into. And here's how it works. Every year you put up to fifteen hundred dollars or 15 percent of your annual income whichever is less into an account. You pay no taxes on that money nor the interest on it until you retire. Presumably you'll be earning less money at that point so you'll be in a lower tax bracket. That way you pay a smaller tax on your savings then you'd have to pay now the retirement income and the deferred taxation can be major advantages. If you plan carefully. A 30 year old employee who puts fifteen hundred

dollars into an IRA at let's say a 5 percent annual growth rate until he's 65 could receive over $17000 a year for 10 years after he retires. Of course nobody knows for sure how such a fund will be affected by inflation and later we'll take that into account. But there's a more immediate note of caution. If money is withdrawn any time before you're 59 and a half years old you will be charged a 10 percent penalty for early withdrawals. So don't put money that you may need for something else into an IRA. You don't have to contribute to your IRA account every year. If for some reason you can't keep up with the schedule you planned you can let it go until you're able to make further contributions. Of course that does lower your retirement income unless you make up for the deposit you missed. If you should become disabled or die before retirement age your funds can be released immediately without penalty to meet your family's needs. Individual retirement accounts now allow millions of workers to design their own pension plan. And if that idea appeals to you there's a lot more to think about.

Oh you caught me. I used to do this all the time before my piano got retired to the cellar. And today I took a big step to make sure that the same thing doesn't happen to me. I open my own IRA. That's right folks get it and you can too. But you gotta figure out where to the positive retirement money whether it's for an IRA or a backup fund to boost your pension from work. Let's say you want to set up an Individual Retirement savings account. Plenty of banks and savings and loans now offer special plans just for that purpose. Interest rates on these accounts do vary from bank to bank. Some of the better plans guarantee a total

annual yield of seven and three quarter percent for the first six or seven years than most offered with little or no service charge. But if you're smart you'll check to see if the plan is as good as it sounds. A lot depends upon when and how often you make your contributions. Be sure to give the bank a clear idea of the payment schedule you plan to keep and ask them to give you a clear idea of how much money you'll have when you retire. That's the most useful figure you can get for your comparison shopping. When you do retire you have any number of options for withdrawing your pension from a lump sum to monthly payments for a specified number of years. Money is versatile. So if you don't want to open an IRA savings account you've got other alternatives. You can always buy bonds. US retirement bonds that is also for people who are in other pension plans. The bond yields 6 percent interest compound it semiannually that means in 20 years. A thousand dollar bond will be worth over thirty two

hundred bucks. If you want to secure retirement income a regular investment environs could be your ticket. They're sold only at Federal Reserve banks. But you can check with the folks at your local bank for information you need to order the bonds. You can also look into and out for some guaranteed retirement income. Most life insurance companies offer a wide variety and some are tailored to IRAs so that your premiums are nontaxable until you retire with the right INTUITY you can guarantee yourself a retirement income that lasts as long as you do. And if you ever seriously disable an annuity with a waiver of premium option will commit the insurance company to pay your premiums until you recover. Look for that option. It's a distinct advantage. A disadvantage is that most in the 80s a comparatively expensive because of commissions and service fees. Most annuities don't guarantee as high an interest yield as many savings

accounts. On the other hand the savings accounts don't offer the waiver premium protection that someone knew what to do. It's all stuff that the data think about but IRAs us retirement and annuities are all pretty secure ways to provide a fixed retirement income. Remember the first thing that you want to figure out about any retirement fund is how much you can count on when you do retire. Then you can say retirement date. A. What do you do if you leave one job that has a pension plan and take another without a pension plan. Well you can take your funds from the first job and deposit the entire lump sum no matter how large into a tax exempt Ira. Some pensioners deposit these rollover funds into one of the more speculative IRA arrangements called self directed accounts. They're designed for investing retirement money into stocks and bonds of your choosing. But such an account may be impractical for a modest pension because of the relatively high maintenance

fees and generally the less money you put away for retirement the less speculative you want to be. The same is true of time. The closer you get to retirement day the more you need to know just how much money you can count on and how adequately those funds will suit your retirement needs to find that out. You'll have to sit down and project what your family budget will look like when you retire. Of course the closer you are to retirement age the easier this will be as soon as it's feasible. Tally up what all your monthly expenses are likely to be. You can probably count on a 25 percent reduction on your present cost of living because of the money you won't spend on working every day commuting costs meals away from business attire and the like. On the other hand inflation will increase your cost of living by around 5 percent a year and you should allow for that in your calculations. If you make your budget specific enough you should be able to estimate how much you will need each month to meet your living and Recreation expenses. Then of course you must determine whether your pension and Social Security benefits plus other assets will be enough to live on. If not your choice is to

set aside more of your earnings now or find realistic ways to scale down your retirement budget. But you can't make that decision until you know what your retirement income will be. If you plan to stay with your present employer until retirement or you have an IRA you should be able to make a close estimate of your monthly pension payments. Determine how much you will get from Social Security. You can inquire at the local office. Some offices are better than others of providing that information so you may want to look at the materials in our survival kit that can help you determine on your own what your Social Security benefits will amount to what you're planning won't be over until you make one big decision. Been hanging around like this. Not quite how. Wow. Yeah. Since the day you were stopped What did you have that how do you decided what to do about it. Not one of us had been thinking

ma and. And I still think in my good standing right here what we're doing Paul probably a little dusty by now. Yes we ought to said it. Took long. You could use the Tan Yeah good get us one of them. Mobile homes to stand in front of a house that keeps moving round Paul. Then all that mobile home like us. Maybe you model. If you own a home should you sell it when you retire. That's a question everyone has to answer for themselves. But we can offer these tips if you're within five years of retirement

and you think you will be staying on your present home. It's a good idea to take a look around to see if the place will be needing any major repairs or improvements. It's usually best to have them done before you retire. That way you avoid the financial burden on your retirement budget. If you do decide that you have more house than you need for your retirement or that you want a change in lifestyle remember that if you wait until you're 65 to so you'll be entitled to a sizable federal tax break that can make a difference. And when it comes to deciding where to move there are plenty of possibilities you might consider a retirement community. There's a wide variety to choose from offering houses or apartments arranged around some sort of community center. Some are condominium arrangements. Others are not. Either way there's often some type of group membership program through which you can participate in recreational activities with your neighbors. Prices and features vary widely but there is one fairly common problem to watch out for membership and maintenance fees are often hiked to keep

pace with inflation. Too often fixed retirement incomes can't keep up with either. After you nailed down what facilities and activities such fees do entitle you to. You might talk with a few residents to see if they're cutting down on group participation because of a rising community expenses. In fact you should talk with a few residents about any detail that comes to mind while you're at it. The only better way to get a feel for the place is to move in for a while. And if you can arrange to do that do it while you have time to experiment. Consider spending weekends and vacations there to sample the lifestyle. Learn everything you need to know about the place including the cost of living in the day to day pace of things. You may find that you don't like living in a neighborhood populated solely by retirees. It's better to find that out before you buy than after. Now you've no doubt seen plenty of ads like this one be extremely cautious about installment plan the land sales particularly for property you haven't seen countless

undeveloped dream sites have turned out to be nightmares. If you want to buy land for a retirement retreat visit the area that appeals to you and deal with a local realtor who has established a solid reputation there and when it comes to mobile homes there are a few points to keep in mind. First they're not all that mobile. When you decide to move it's usually more practical to relocate in another home rather than move the one you have but they are less expensive than standard housing and they generally require less maintenance. These are perhaps the two biggest reasons why mobile homes are becoming increasingly popular with retirees. The important thing to determine about any mobile home is the quality of its construction. How well it holds up to conditions in the area and what protection it offers against the threat of fire. Shop carefully consult buyers guides. For that matter consult buyers. It's often useful to interview longtime mobile home residents about the problems they've experienced and if you like a particular mobile home park

make sure they have room for you before you buy a mobile home otherwise you could find yourself without a place to put it. There's also another alternative sheltered housing usually an apartment house designed for retirees. Features usually include food service and an attendant on desk duty to provide full time security. Since federal funding or a church affiliation generally subsidizes such housing it's usually restricted to people below a specified income level. If you're close to retirement and interested in finding out about sheltered housing in your community contact your state office on aging no matter how pleasant a home you retire to. It won't be very comfortable if you're not at home with being retired. That's my son. He knows everything. Ask him he's an all purpose and a man around the house. His own mechanic and guard not big central river grapple and he's a good businessman to boot. I look at him and I seem to myself. Most of you on the little

fall of the and he looks at me and says Dad let me give you some advice. You know always that for years he advised me on how to prepare for my retirement preparation is critically seen and not just financial preparation that goes without saying but you gotta be prepared mentally too. Sure I say with all that I don't time I just sit around reflect on my two years retirement has to be I believe say there's plenty to do and it's up to you to make yourself useful. Where's the stamina for all that activity going to come from when I am a sick old man I'd ask you. No he is not us. There's the same common sense and keep you healthy when you're young you're healthy when you're all moderation exercise good diet no small want to keep you going strong. Yeah that son of mine knows everything but at

last he's taking his own advice. Today is his retirement day and you know what I think he's going to make and it's a good thing too. He'll set a good example of that because you know someday. I'm going to retire. Too. Experts tell us that the people who enjoy retirement most are the ones who begin with a favorable attitude and realistic expectations. A major factor is how much actual planning they do before retirement to plan the right strategy for yours. You might look into pre retirement counseling such services may be offered where you work. Colleges and Universities in your area might also sponsor classes and seminars to help prepare you for your

retirement day. Your state office on aging should be able to direct you to counseling services that might make a real difference in your outlook. No doubt you will discover that retirement does not have to be idle. Retirees are enrolling in college courses sometimes for reduced admittance fees and coming out with a degree. Some even begin a whole new careers. You might also consider part time work but you have to keep in mind that you can earn more than two thousand seven hundred sixty dollars a year without jeopardizing your Social Security benefits. Generally you lose $1 in benefits for every $2 you make over the limit until you turn 72. After that theres no limit at all on what you earn. Check with an employment counselor for details. Of course there's also plenty of volunteer work you can engage into. There's an abundance of resources to consult all these possibilities at your local library. You need only invest the time and one of the better places to start your own survival kit.

In this week's survival kit we take a close look at how recent changes in the law and improvements in private pension plans can affect your retirement planning individual retirement accounts or IRAs designed for people who are not now covered by a private pension are also discussed in the kit with an emphasis on how to shop around for the best deal. We'll also have you determine what you can count on from Social Security and Medicare. If you're interested in rehire meant instead of retirement for the financial physical and psychological rewards of a working retirement our kid will show you how to pursue retirement employment in your own state office an agent can give you plenty of help in retirement planning. So we've included the address and phone number of these offices in all 50 states. For your consumer survival kit on retirement send $1 to cover reproduction costs postage and handling to retirement. Box 1975 or weans Mills Maryland 2 1 1 1 7. Please allow 4 weeks for delivery.

That's $1 to retirement. Box nine hundred seventy five. Always Mills Maryland 2 1 1 1 7. Incidentally the most common consumer problems encountered by retired people are among those covered last year on the series last season's kids including those on land sales and mobile homes are still available. Our list of both season's topics is included in the retirement kit so you can order the additional ones that interest you. You. Are. In your own community there are agencies that can counsel you on problems that retirees commonly have to face. Like finding out what to look for part time employment or meaningful volunteer work. Where to get counseling to make the emotional and financial adjustments to retirement. Where to go for low cost housing and health care. A way to find companionship the best directory to the services you need is your state office on a.g listed under that or a similar name in your phone book. They

can refer you to the appropriate services closest to where you live. It could save you a good deal of time and trouble. And don't let the name fool you. Their services can be helpful to retirees and retirement planners of any age. Your prospects for a successful retirement can be substantially improved by planning ahead both financial security check your pension plan. If you don't have a pension consider an individual retirement account. Make specific plans for managing your time and money when you do retire. If you decide to move try live in trial runs before you retire. We'll see you next week on consumer survival get it. Consumer survival kit was produced by the Maryland Center for Public Broadcasting which is solely

responsible for its content and was made possible by public television stations and by grants from the Ford Foundation and the Corporation for Public Broadcasting. Why you today.