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                       STAYING INDEPENDENT

                               Planning for financial

                           independence in later life

TAKING STOCK

     As retirement approaches, it is important for every

household to assess its financial identity (assess its

finances). Waiting too long might mean missing one or more

opportunities to preserve maximum financial independence in the

future. To help get you started, can you say "Yes" to the

following statements?

                                                     YES    NO

We talk regularly and frankly about finances

and agree on our goals and the lifestyle we will

prefer as we get older.

We know our sources of income after retirement

how much to expect from each, and when.

We save according to plan and are shifting from

growth-producing to safe income-producing

investments.

We know where our health insurance will come

from after retirement and what it will cover.

We have reviewed our life insurance and

considered options such as converting to cash

or investments.

We each have our own credit history.

We each have a current will or living trust.

We know where we plan to live in retirement.

We have anticipated the tax consequences of

our retirement plans and of passing assets on

to our heirs.

Our children or other responsible relations know

where our important documents are and whom to

contact if there are questions.

We have executed legal documents, such as a

living will or power of attorney, specifying our

instructions in case of death or incapacitating

illness.

THE KEY IS PLANNING

     "If only I'd known then what I know now ...."

     Looking to the future is key to financial planning at any

age, but especially in the decade or so before retirement. For

many households, retirement is a time to fulfill dreams and

delayed ambitions. It also can be a time of anxiety if you

postpone thinking realistically about the ways your financial

identity will change--income, savings, investments, credit,

insurance, job benefits, and perhaps living arrangements.

Meeting the challenge of financial management will help remove

uncertainty and increase your available options. Both partners

need to be involved in retirement planning and may wish to

discuss their plans with adult children.

     Many people neglect planning. Some prefer to leave

financial decisions to the other partner, while others simply

find it too difficult to talk about money. Whatever the reason,

if you have not yet begun planning, you may want to seek

pre-retirement planning advice from a professional or a

community service organization.

LOOKING AHEAD

     The decade before retirement is a good time to take

inventory of assets and obligations and make financial choices

aimed at maximizing future resources. These years are typically

a peak earning period and they offer the chance to reduce major

debts, such as a home mortgage, and increase savings and

income-producing investments. Households faring the combined

expenses of educating children and caring for aging parents may

find saving difficult during pre-retirement years. In these

cases, making a realistic financial appraisal is more useful.

These are questions you might ask yourselves:

   * What are our sources of retirement income and how much

     will each provide-monthly or in a lump sum?

   * Social Security

   * Pensions, IRAs, Keoghs

   * Savings and investments

   * Sale of assets

   * Home equity

     Find out all the options for receiving your pension

benefits and whether they are insured. Find out if pension

benefits will be reduced if you receive Social Security. Read

carefully and consider the consequences of signing any

documents relating to a reduction in spousal pension benefits.

One of you may need this income if the other dies.

     When estimating how much income can be expected from these

and other sources, remember to take inflation, taxes, and

market fluctuations into account. Depending on your anticipated

income potential, you may decide to postpone retirement a few

years, or plan to work part-time.

   * Is our health insurance adequate for retirement?

     The cost of serious or long-term illness is a major burden

for many older Americans because Medicare does not cover all

health care costs. If you consider buying "medigap" insurance

to supplement Medicare, shop carefully for a policy that

supplements rather than duplicates Medicare coverage. Long-term

health insurance for nursing home or home health care is new.

Examine all the terms of any such policy before you buy.

MANAGING WHAT YOU OWN AND WHAT YOU OWE

     Professionals say that retirement income should be 60-80

percent of current income to maintain the same Standard of

Living. If your financial picture does not correspond to this

guideline, you might prepare a budget and a cash flow statement

based on income and expenses during the preceding 6 to 12

months in order to identify gaps in income and find ways to cut

spending.

     On the expense side:

   * List current expenses such as housing, food, health

     care, transportation costs, and other financial

     obligations.

   * Include a contribution to savings. Experts recommend

     a reserve fund to cover 6 months of basic expenses.

   * Itemize personal expenses for such things as clothing,

     travel, entertainment, and hobbies.

   * Develop habits such as price shopping, menu planning,

     coupon dipping, and monitoring your use of credit

     to guard against overspending.

     On the income side:

   * Think through contingency plans in case expenses begin to

     outpace income or one partner becomes seriously ill.

   * Remember that credit histories in your individual names

     can be invaluable in retirement, or in the event of

     widowhood or divorce. Credit can be essential to meet

     unexpected or emergency expenses.

     Federal regulations prohibit age and gender discrimination

in the granting of credit. Lenders must treat all income alike,

whether from employment, retirement benefits, or other reliable

sources. Still, it may be easier to get a national credit or

charge card in your own name while you are employed. If you

have never been employed, you can still build a credit history

by becoming an "authorized user" on your spouse's account.

   * Consider selling assets or converting life insurance into

     cash as another possible way to meet expenses.

   * Investigate Home Equity Conversion (HEC) as an option if

     you own or nearly own your home and need money. There are

     several kinds of home equity conversion loan plans,

     including Deferred Payment Loans and Reverse Mortgages,

     where you borrow against home equity and receive monthly

     or periodic cash payments.

     Unlike home equity loans or lines of credit, reverse

mortgages involve no monthly repayments as long as you live in

your home or until a predetermined date. These plans do involve

costs for application fees, closing costs, and interest, and

they may affect eligibility for public benefits programs such

as Medicaid. Generally, you can decide how to spend the money.

Reverse mortgage plans are not all the same, so it is important

to read the loan documents carefully. Check with a trained HEC

counselor, other financial advisor, or an attorney before

deciding whether home equity conversion is appropriate.

LEGAL MATTERS

     You can use several legal tools to maintain control over

your affairs in later years. These will enable you to decide,

while healthy and alert, what you want done in the event of

death or disability. Be sure to discuss any arrangements with

your survivors to save them from facing difficult decisions and

to give them peace of mind, knowing they are complying with

your wishes.

   * Wills--If you do not have a current will, the state, not

     you, will decide how your assets are divided. Such legal

     documents as Living or Revocable Trusts offer ways to

     avoid probate.

   * Trusts--This device lets you decide who would be

     responsible for your financial affairs if you became

     unable to manage them yourself.

   * Powers of Attorney and Living Wills--Powers of attorney

     typically assign responsibility for financial matters to

     another person. Some apply to health care decisions as

     well. You can use a Power of Attorney or a Living Will to

     state in advance your wishes in case of an incapacitating

     or life-threatening illness. Doing so is essential if you

     want your family to know the circumstances in which you

     wish to decline life-support measures.

RELOCATING OR STAYING PUT

     Where to live after retirement is a major decision.

Perhaps you plan to relocate to a more favorable climate or to

be near family. Research the consequences of such a move in

terms of the basic cost of living, access to health care, and

state and federal tax obligations.

     If you are considering the advantages and disadvantages of

selling your home, whether or not you plan to relocate, these

are some questions to ask:

   * Can we afford monthly payments for mortgage, taxes,

     utilities, and maintenance?

   * Will one or both of us be able and willing to take care

     of the house?

   * Is the house a suitable place to live as we grow older and

     less agile?

   * Will we need to draw on our home equity as a source of

     income or credit, or would we have more options if we sold

     the home and invested the proceeds?

     In addition to owning a home or renting an apartment, a

number of other housing options may be available in your

community, many of which offer savings on housing expenses.

These are some alternatives to consider:

   * House-sharing for help with chores or added retirement

     income;

   * Group living in a private home or one sponsored by a

     social services agency;

   * Accessory apartments, or mobile or manufactured homes,

     including ECHO (Elder Cottage Housing Opportunity) housing

     which, if zoning laws permit, can be installed on the

     property of an adult child or other relative;

   * Condominiums or cooperatives which have the advantages of

     home ownership without the burden of maintenance;

   * Retirement communities which may offer companionship,

     recreation, and sometimes medical and housekeeping

     services.

SPECIAL CONSIDERATIONS

     An important part of financial planning is anticipating

how to handle bad times. Prudent planning includes learning

about public and private benefits programs. In most

communities, governmental and private agencies offer services

to help care for older persons, such as low-cost medical

clinics, home health care, housing options, adult day care, and

chore services.

     The local Social Security Administration office has

information about entitlement programs such as Medicaid,

disability insurance, food stamps, and Supplemental Security

Income. Ask about your state's Medicaid "divestment" rules

which permit transfers of some assets to other people if done a

specified length of time before applying for Medicaid (usually

at least three years). Divestment is a precaution some take to

avoid "spousal impoverishment" when all the family's assets are

spent before a sick family member can be eligible for Medicaid

assistance.

     When arranging family matters, it will ease your

survivors' emotional burden if you let them know your

preference for funeral or memorial arrangements. You can handle

these matters yourself by planning through a non-profit

cooperative memorial society or by prepaying at the funeral

home of your choice. If you decide to pre-pay, be sure you or

your survivors can cancel the contract should you move or

change your mind. Planning ahead and using comparative shopping

skills can save thousands of dollars in funeral expenses.

PLANNING TO STAY INDEPENDENT

     It's never too early to start retirement planning, and

never too late to make adjustments in your financial situation.

Whether wealthy or not--and it is probably more important for

those who are not--investigating your options and making

practical choices now can allow you to stay in charge and meet

future financial goals.

FOR MORE INFORMATION

For additional information and brochures...

Consumer Information Catalog

Pueblo, CO 81009

Cooperative Extension Office--local office is listed under

State, Federal or County Government in the phone directory

American Association of Retired Persons

Consumer Affairs, Program Department

1909 K Street, N.W.

Washington, DC 20049

(202) 728-4355

Federal Trade Commission, Public Reference

6th and Pennsylvania Ave., N.W.

Washington, DC 20580

(202) 326-2222

National Foundation for Consumer Credit

8701 Georgia Avenue, Suite 507

Silver Spring, MD 20910

(301) 589-5600

American Council of Life Insurance (ACLI)

1001 Pennsylvania Avenue, N.W.

Washington, DC 20004-2599

(202) 624-2455

Health Insurance Association of America (HIAA)

1025 Connecticut Ave., N.W.

Washington, DC 20036-3998

(202) 223-7780

Continental Association of Funeral and

Memorial Societies, Inc.

7910 Woodmont Avenue

Bethesda, MD 20814

(301) 913-0030

This is one of a series of brochures about building and

maintaining a financial identity--both as an individual and as

a partner in a two-income household. The series is about

selecting and using financial services and service providers.

It covers credit, investments, financial services, job

benefits, and financial planning.



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