Retirement planning is a multi-pronged activity. You want to incorporate retirement income planning with:
- health insurance
- disability insurance
- long-term care insurance
- wills
- trusts
- various POAs (power of attorney)
Health insurance is important to take care of the issues that arise any time, any where, but specially as we get older. And if you find yourself in a situation where you can’t work because of an illness, then disability insurance will kick in and pay somewhere between 45-60% of your gross income. Long-term care insurance handles the time when you have a degenerative condition (like a stroke or Parkinson’s), a prolonged illness (cancer or a coma), or a cognitive disorder (Alzheimer’s). Another way to think of long-term care is as “nursing home insurance”.
Wills spell out how you want your possessions dispersed after your death, and if you throw your living will into the formula, you clearly state what’s to happen to you and your estate in the event of a permanent disability or terminal illness. And trusts put your real estate and other belongings into a plan that ensure your heirs receive your property according to your wishes.
A Power of Attorney (POA) is a legal instrument that delegates legal authority to another. There are different POAs, including durable, nondurable, and springing. A durable POA enables the selected person to act for the Principal in the event the Principal is mentally or physically incompetent to handle their own affairs. It’s effective until either revoked by the Principal or the Principal’s death. A non-durable POA is often used for specific transactions, like a real estate transaction. A springing POA becomes effective at a future time, like for an illness or disability; it’s in effect until either the Principal’s death or until revoked by a court.
Retirement planning is important because retirement is going to cost you more than you probably are estimating. Your living costs don’t go down when you retire, they go up, partially because of increasing medical costs. Health care isn’t cheap, and as people age their health problems tend to increase. That’s a double whammy that you need to plan on.
Retirement planning mistakes to avoid include:
- not checking out your financial advisor or broker before hiring them
- withdrawing money from your retirement plan which causes loss of interest and possible early withdrawal penalties
- relying on Social Security as your retirement income
- not monitoring your investments
- not reviewing your plan regularly
- putting all your eggs in one basket, or poor asset allocation
- not taking retirement planning seriously, or doing it at all
Retirement planning investment options (or savings) include:
- savings accounts and CDs
- Roth and Simple IRAs
- 410(k)
- annuities
- modified endowment contracts
Planning for retirement may mean hiring a professional who specializes in retirement planning services, or you may want to buy retirement planning tools and manage it yourself. Just be sure to do something, anything, toward saving money for retirement.
Retirement planning starts today. Don’t wait until you are retired to implement a smart plan, because it’s probably too late then. Life happens, and you should be at least one step ahead of the game. Make sure you have not only your retirement income planning taken care of, but also health and estate planning issues nailed down.