Preparing for Retirement

azmomSeptember 5, 2011

We plan to retire in 6-7 years.

In addition to "save as much as you can", and "pay off your mortgage", may we ask for any other advice in preparing for retirement?

In other words, may we ask what you are glad you did, and what you wish you would have done before your retirement?

Thank you.

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We both turn 65 next year, and this fall we are taking a "Boomer 101" class on transitioning to Medicare, all the ins and outs of the system. DH plans to keep working, but there are penalties if you delay or sign up incorrectly.

I've watched people make the mistake of moving to some faraway location to retire, leaving family and familiarity behind. Then when there's a medical emergency (as there often is), the burden is on the children to help out via long-distance. So I suggest that people think long and hard about moving, unless they move to be closer to family.

Start cleaning out the attic/garage now. No joke. Have recently cleaned out the property of my DH's 87 yr old uncle who recently died, and he threw away nothing. His parents had lived in the same house, since the mid-1930's.

And make sure that your estate planning is in order. Wills and trusts and especially medical directives. Do it now!

I volunteer as a counselor with a senior agency, and aside from people living on far too little money to meet increasing needs, isolation from family is a major problem. And medical issues always pop up.

If you're staying in your home as long as possible, is it handicap accessible? I recently had a hip replacement, and our home is definitely NOT good for anyone with mobility issues. Someday we will move to a single-level home.

These are just a few thoughts. I hope other people add more.

    Bookmark   September 5, 2011 at 10:42AM
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Get used to not using credit if at all possible. Buy a car that should last you at least 10 years with proper maintenance. Pay off all other debts, and get used to paying as you go.

    Bookmark   September 6, 2011 at 1:07PM
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My husband's company offered their retirees a group of seminars we went to all of them. The 3 I listed are the ones I remember because they were important to me.

There was one on finances. The rep tore a dollar bill into strips while explaining what each piece went for until there was only an eighth of an inch left to live on. that was scary until we actually retired and reality set in. Of course they were wanted us to invest with them so we would not have to live they described.

Insurance was another, they explained 3 ways you can loose your life savings, all of which was being under insured. I agree 100% with that one. We were covered except for the umbrella policy which was new to us, we took one out right away with our agent.

Then there was the funeral home director who advised us to prepay our funeral expenses, then if one of us dies while on vacation just call your funeral home in your city and all will be taken care of for you. He did not tell us a prepaid funeral is just an insurance policy and you can go to any funeral home and they have to honor it. I prepaid for mine after my husband's death. It cost $800 for my husband's final expenses and mine will cost $600. plus the $90. for both of our cemetery plots.

We were saving so much money before we retired we felt rich afterwards with his pension and social security.

The status now is I am spending and enjoying my senior years. My husband worked hard for our money, I took care of it and gave up what a lot of people had to be comfortable now. I am not about to leave anymore than I have to anyone else.

    Bookmark   September 6, 2011 at 11:49PM
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Plan for things to go wrong. Because they do! Health, finances, family - pre-planning is being prepared, when faced with life-changing events.

Our friends/family who have run into difficulties have done so because they were careless about their planning and didn't really stress-test their assumptions. Remember the old saying about building your house on sand? That's pretty much what they all ran into.

We're the only middle-class people we know who retired early, although I know a fair number of wealthy people who did so. The chaos of 2008/2009 didn't affect us at all.

- Learn the difference between Medicare and Medicaid. It's useful knowledge to have for elderly relatives, yourselves, and your friends.

- Discuss retirement and money with one another in-depth, so that you're both on the same page when it comes to what you'll be doing day-to-day, as well as ideas about traveling, visiting relatives, staying in touch with friends, learning new hobbies, etc.

- Discuss a plan for action for death or disability of one of you. This includes a 'what if' should one of you die BEFORE retirement.

- Be aware that making new friends is a big part of this phase of your life. You do not want to be like my MIL, who refuses to make new friends but as her circle of old friends die or move away, she is getting lonelier and lonelier. If you have never made friends with people younger than you, now is a good time to start.

    Bookmark   September 7, 2011 at 3:44PM
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sushipup, vala55 and jkom51, Thank you so much. I am always impressed by your opinions, I feel privileged to have your inputs.

So far, working on the retirement preparation has been overwhelming. We divided it into 3 sections: Savings/home, Estate Planning/will and Medical Care/insurance.
Savings/home - sushipup, we have a single level home, with wide hallways and big entrance, to make it handicap accessible in the future should not be too hard. The house is comfortable and is in a good neighborhood; it could be our forever home. The only debt we have is a small mortgage. We pay off credit card monthly. We have fairly streamlined household. We put emphasis on function and quality for all purchases.

We are not savvy investors; all we have been doing is to live within our means, max out 401K and IRAs and save what is left monthly. We purchase stocks of individual companies that are industry leaders. We use dollar-cost-averaging to purchase no load mutual funds for small cap, international and aggressive growth holdings. The retirement tools offered by brokerage houses said that we are on track with retirement savings, but who knows how trustworthy these Monte Carlo simulations are.

Look deeper our holding is out of balance, it has too high cash position and too high risk. It is clear that we have been spending too much time at work and neglecting our personal investments. There is lots of self blaming, and catch up need to do in this area.

Estate Planning /Will - We plan to use revocable living trust to hold assets outside of IRAs and 401Ks. Our children are grown with satisfied careers; we have similar money attitude. The blessings mask the urgent needs of having specific details for our Estate planning and Will. We are embarrassed. We are actively reading and working on details. jkom51, you are so right, we need to run stress tests and play more 'what if' scenarios.

Medical Care/Insurance - We have adequate medical, life, household, liability insurances, but have no long term care insurance. We know this may break our entire plan, it is very scary. We need to look into it. We are healthy, again, this blessing masks the needs of investigating the protection we would need should one of us has health crisis. Vala55,Jkom51, sushipup, it never occurred to us that we need to learn about the difference between Medicare and Medicaid, going forward, we would need to keep our eyes open for "Boomer 101" type of courses.

Thank you again for making us realize how UN-Prepared we are. We are actively reading and learning, it is not easy giving the busy schedule. But it has to be done. I will check in later to report our progress. In the meantime, please drop us your idea whenever it occurs to you.

    Bookmark   September 10, 2011 at 7:16PM
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Please be aware that if the liability insurance is to replace income rather than to cover accidents in your home or other property after you retire you should drop it. Parents had one of those liability plans that supposedly pays if you can not work. They "supposedly checked" but once dad retired there was no income to replace and mom had not worked since they married. Got the run around when I tried to get their money back.

    Bookmark   September 12, 2011 at 2:26AM
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The stock market is gyrating wildly around so this is not a bad time to be in a high-cash position. Especially as it's recommended that when you do retire, you have at least 2-5 yrs of expenses in an easily available cash account. That way you don't have to liquidate unexpectedly, if the market drops and your dividends falter.

You probably do want to shift gradually to a more conservative portfolio, while keeping a portion in equities for growth. Be patient and sell the most aggressive holdings on an upswing, then transfer to a short- to medium-term bond fund.

I have written before about customizing an RLT to avoid difficulties for a surviving spouse. Let me know if it has scrolled into oblivion; I can repost it here if you need the info.

LTC can be a major expense and LTC insurance is a difficult, complex product to buy, so start now to look into its costs and decide if it fits into your overall risk profiles. Combo products (life and LTC combined) have some real disadvantages but can sometimes be the only cost-effective alternative for some.

Good luck and congratulations for asking these questions BEFORE the critical five-year mark.

    Bookmark   September 12, 2011 at 2:53PM
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We didn't stress out before our retirement. My husband and I discussed everything, he let me handle our money and agreed with my recommendations. I kept our savings in CDs and after my husband retired our accountant explained 5 options for my husband's company VIP funds. We opted to cash in our company VIP account. We did not invest, my thought was the principal was more important than possible future interest. We cancelled the small life insurance policies.

I researched care homes statistics, and talked to an estate lawyer, he explained the Division of Assets to me. My husband did go to a care home. I met with an SRS rep when he was admitted and the rep confirmed everything the estate lawyer told me. I knew I would be okay financially.

About your wills and other documents You need to know about a document called a Comfort Care Order in my state. It has different names in different states. It works like the living will but it is related to meds. It is an order that states no meds that will extend our lives.

I am sure you will be okay. Enjoy your retirement.

    Bookmark   September 13, 2011 at 10:54PM
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The September issue of Costco Connection magazine has a series of excellent articles on retirement planning.

It's available at the stores, usually on a rack near the exit, or online.

Here is a link that might be useful: Costco Connection/September 2011

    Bookmark   September 24, 2011 at 10:07AM
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sushipup, vala55, maifleur and jkom51,

Checking in...

Our most urgent task is to get estate planning/Will done. Since last posting, we did fair amount of intense reading, and picked an estate planning lawyer among the ones we had interviewed during this past year. We are following the lawyer's instructions to get down details for revocable living trust, Will and durable PoA for health care & finance. We plan to get everything set up and funded by the end of next month.

Maifleur, our liability insurance is to protect accidents; it is not for replacing income. Vala55, I asked, unfortunately the lawyer said that the Division of Assets is not applicable to us. Jkom51, we follow your suggestion and leave instructions to compensate the executor for the work.

Next on the To Do list is getting LTC insurance. Jkom51, I book marked your past postings on the subject, I will read them closely. sushipup, thank you for the links to the Costco articles, I will go through them soon.

I also renewed Morningstar subscription and re-evaluated equity holdings. DH has a steadfast investment strategy, mine surely can use more disciplines. I have done some pruning, there are a lot more purge needs to be done.

Jkom51, you said "...for asking these questions BEFORE the critical five-year mark". What is the significance of the five-year mark? You also mentioned the posting of "customizing an RLT to avoid difficulties for a surviving spouse"; may I ask the title of the posting? off and on I read many of your postings, but don't recall the specific posting that has the information.

By now it is clear to us that retirement planning is an ongoing process. In addition to taking "Boomer 101 class", we are also planning to update bathrooms and kitchen, as well as purging belongings. We want to take care of these before we actually retire.

sushipup, vala55, maifleur and jkom51, thank you again for the advice. You surely make us feel being supported and less overwhelmed.

    Bookmark   September 25, 2011 at 11:13PM
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Congratulations on being so organized - I wish we had been able to do so much in the short timeframe you have accomplished.

I mention the 'five year mark' because it's enough time to do concrete retirement planning/analysis, while still allowing enough time to make any financial changes needed to ensure an adequate retirement budget.

I believe my posting about customizing an RLT is in one of my postings on a general discussion of trusts. Right now I'm on my netbook, but tomorrow I'll take a look on my desktop PC and look for a copy of my posting on RLTs, and will repost it here if I find it.

    Bookmark   September 26, 2011 at 12:04AM
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I couldn't find my post, so I just rewrote it. HTH!

An RLT for a married couple who live in a community property state, has certain issues that need to be understood:

(A) At the death of one spouse, the estate is now divided into equal halves. All assets are appraised and the value is split equally between the dead spouse and the living spouse. It doesn’t matter to the State or Feds how it’s split up, just that the asset totals be equal.

Be sure your Trustee knows where to find the appropriate professionals to appraise the various types of assets your estate holds, whether investments, RE, collectibles, etc. The value is "as of the day of death", and the Trustee needs to have the paperwork stating the value - not what the deceased thought it was worth nor a verbal assessment. It needs to be in writing, even if a personal collection is being appraised by a fellow amateur hobbyist, as a “just in case” measure should there be any dispute about the Trust’s assets.

(B) The deceased spouse's assets are now IRREVOCABLE. The Trust document administering these assets can only be changed by a fairly massive legal effort - every single person mentioned in the original RLT, whether primary or secondary or tertiary beneficiaries, must agree in writing to any desired legal change, however minor or major, and a judge must approve the amendment to the trust documents. Our estate attorney said that every time she has to go in front of a judge, it's a minimum of $3,000, even if it takes five minutes.

The Trustee of the new Irrevocable Decedent's Trust is usually the surviving spouse and/or the Successor Trustee - but it is dependent upon the language of the original RLT.

(C) The Survivor spouse now sets up a new RLT. Often, as my MIL did, one of the children is picked as the new co-Trustee. The Survivor has full control over ONLY the assets in their new RLT. The Survivor is always limited by the terms of the original RLT.

(D) Some spouses, especially the 'old school' tradition of the husband taking care of everything, don't give the surviving spouse any authority over the new Decedent's (Irrevocable) Trust's assets.

The standard "boilerplate" language in an RLT - remember that these trusts were originally for only the wealthy - states that the Survivor is entitled only to certain income from the Decedent's Trust assets. This is sometimes expressed as a set payment or percentage of the Trust's net worth. More commonly, it gives the Survivor only the "dividends and interest" off the principal, but disallows the Survivor from ever accessing the principal.

This "locking up" of assets was intended to prevent a surviving spouse from draining the estate away from future generations (children and grandchildren). But for middle-class couples, it can mean that the Survivor is no longer entitled to access a great majority of what were, before death, jointly held assets.

In order for a Survivor to have full control over all assets in the Decedent's Trust, the original RLT has to specifically state that this is allowed. Even our estate attorney was somewhat surprised when we insisted upon placing such language into our RLT. It's more common to limit Survivor access to reimbursement only for "health, maintenance, and education expenses".

    Bookmark   September 26, 2011 at 1:43PM
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The divisions of assets would not affect you now, but would if one of you have to go to a care home later.

    Bookmark   September 26, 2011 at 8:06PM
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Jkom51, it is so kind and generous of you! I don't expect you to re-write the posting. I truly appreciate this huge favor!!!!

The timing of your write up is perfect. This afternoon we had a meeting with the lawyer; one of the questions is to get around the passing spouse's irrevocable asset. Another one is handling the seemingly mutually exclusive wishes: protecting survived spouse and leaving assets to the children.

We are not as organized as we should be. Both DH and I have a tendency of collecting information and analyzing things to death. Setting up living trust has been on our minds for a few years. Finally we decided to treat it as a project by giving a schedule. We want to design a system (living trust) that is watertight but simple, easy to implement and maintain. With the lawyer's help, so far the chance of completing it on time is pretty good.

Vala55, I need to look into the Divisions of assets deeper. Thank you for the reminder.

I will report back soon.

    Bookmark   September 27, 2011 at 12:15AM
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