While combination life insurance-long term care products can reduce the expense of long term care insurance, that alone may not be enough to feel comfortable with the retirement income that we have available.

     The market volatility has had a severe impact on many retirees.  With account values dropping so rapidly, it makes it difficult to rebuild the value of the nest egg.  Retirees also find it challenging to maintain a consistent monthly draw from their retirement nest eggs for fear of depleting the account too soon.

     There are only two ways to handle the challenge.  There either needs to be an increase in the monies that are in the retirement nest eggs or a reduction in the monies being drawn out each month.

     So, if going back to work is not the favored option, then we need to look for ways to reduce monthly expenses.  Here are some tips to help make the process smoother.

Categorize expenses

     Some expenses are mandatory, while others are optional.  We should make sure that mandatory expenses are covered first, and optional expenses are included as finances allow.

     Mandatory expenses would include such items as mortgage or rent payments, car payments, utilities, and food.  Optional expenses might include eating out, vacations and trips, and other forms of entertainment.

Scaling back

     When we realize that we have to scale back our spending, the easiest place to start is with our optional expenses.  Are there things we can cut back or eliminate altogether?

Home and car maintenance

     During working years, there are some household tasks that may have been easier to delegate to others than to try to squeeze into the schedule.

     For example, some households hire out for yard maintenance or housekeeping.  Some households also pay for car washes and car detailing.  In retirement, it may be more cost effective to do the work rather than to pay for it.

Reading material

     We may have gotten hooked to our subscriptions to various publications over the years.  It has become so much a part of our routine that we don’t think much about paying the annual renewal fees.

     However, in an age where the world is practically only a click away, so much of the information is now available online.  The need for newspaper and magazine subscriptions is becoming less important.

     When looking for areas to cut back on spending, even book clubs can be seen as a questionable expense.  Unless there is a novel that we intend to use as a reference or we plan to read the book more than once, the local public library can be another alternative to purchasing numerous books over the course of a year.

Senior discounts

     Retirees have many opportunities to take advantage of their maturity.  Many restaurants offer discounts to seniors.  Even fast food restaurants have unadvertised senior pricing.

     Some grocery stores and retail stores offer senior discounts on certain days of the week.  Many entertainment venues have senior rates.  Utility companies offer discounts.

     Again, quite a few of the discounts available are not advertised but will be honored if mentioned.  Seniors should not be afraid to ask.

     Retirement is a season of life meant to be enjoyed.  Let’s not let today’s economic challenges steer us away from that.  With careful planning and some simple sacrifices, retirees can look forward to the many, many years ahead of them.

     Times are tough for many of us.  There may be times where we find that we need additional cash and there are few options that remain.  While we understand that our 401(k)s and IRAs are designed for creating retirement income, these accounts may be the only source of a sizable amount of cash.

     We should remember that any withdrawals from a tax-deferred account before the age of 59 ½ are subject to both ordinary income tax as well as a 10% early withdrawal penalty.  For individuals in higher income tax brackets, this could result in losing half of the withdrawal to taxes.

     We also want to consider many questions before purchasing an annuity, since withdrawals before age 59 1/2 are also subjectto a 10% penalty.

     Before contacting anyone to request that a check be cut and mailed out, let’s review the IRS-approved ways to withdraw from your IRA penalty-free.

Buying a first home

     First-time home buyers can pull up to $10,000 from an IRA to buy or build a first home.  If married and both spouses are first-time home buyers, $20,000 can be used.

     This can be helpful for those who have saved some money but may not yet have the 20% down payment required to eliminate private mortgage insurance (PMI).  A larger down payment will also help reduce the monthly payment.

College expenses

     While it is not advisable to forgo retirement savings to fully fund our children’s college educations, IRA funds are still an option for higher education expenses.  These expenses can include tuition, fees, books and supplies, and room and board.

Medical expenses

     If more than 7.5% of income is being spent on unreimbursed medical expenses, IRA money can be used to cover the excess.  It may be helpful to discuss this with a tax preparer or CPA to make sure that the calculations are appropriately applied.

Health insurance

     If an employee loses a job and gets unemployment benefits for 12 consecutive weeks, an IRA can be used to pay medical premiums.  Trying to maintain a household on unemployment income is enough of a challenge, and Cobra payments are often higher than the required payments when employed.

Disability

     If a disability restricts the ability to work before the age of 59 ½, IRA distributions can be taken without penalty.

Military service

     There are some restrictions for military personnel, but soldiers can take a distribution while on active-duty if they have been active for about 6 months.

Last resort

     If none of the above situations apply, there is one more method.  The IRS requires the account holder to take a series of equal payments for a minimum of five years or to age 59 ½, whichever is longer.

     The payment amount is not random.  It must be calculated based on the account holder’s lie expectancy with an IRS-approved calculation method.  Using the approved method may end up providing a smaller payment amount than the actual amount needed.

     In addition, even if the payments are not needed for that length of time, they must still be taken.

     For some investors, these options provide a bit of comfort.  For others, they just confirm that there is no comfortable way to get around the 10% penalty.

     Regardless of the circumstance, we should carefully review all options before making a decision so that we are able to do what is in the best interest of our household.

     This market volatility can be pretty uncomfortable, especially if retirement is in the very near future.  It’s even harder to handle opening those monthly or quarterly account statements when there is no one to turn to for advice.

     The government has temporarily ruled that employees cannot get advice from advisors who represent the custodians of their 401(k) plans.  There is a concern that employees will not be getting unbiased advice.

     Employees have to look elsewhere, but most employers have not provided independent financial education for their employees.  As a result, many employees are not getting advice on how to effectively manage their 401(k) accounts.

     In preparing to retire, many employees are unclear about whether they should leave their 401(k) account balance in the employer plan or roll it into an IRA outside of the plan.  Here are three reasons to consider moving the funds into an IRA.

401(k) plans are limited in scope

     Most 401(k) plans are limited to a select group of investment options.  If the plan is held strictly with one investment firm, such as American Funds, it is possible that the breadth and variety of options is limited even further.

     Ideally, there are advisors who are carefully monitoring the investment choices to ensure that the quality of the investments is maintained.  But, unfortunately, that is not usually the case.  Plan trustees are not always kept up to date on changes that should be made within the 401(k) plan, and employee access to advisors has been minimal at best.

     Retirement years should not be the time to have a nest egg invested in funds that are not being monitored frequently.  This is not the time to have an account maintained in an environment that restricts access to quality advice.

     Choosing to roll assets into an IRA allows account holders the opportunity to select an investment advisor who understands the retirement goals and is able to give advice that is consistent with those goals.

Access to funds in 401(k) plans is restrictive

     If an emergency arises while an employee still employed, it is usually possible to take a loan against the 401(k) balance.  The loan is then paid back, with interest, into the account through payroll deduction.

     Once an employee terminates employment, the ability to borrow against the account balance is no longer available.  The employee would have to request a distribution from the plan in order to access the funds.

     Many retirees are also worried about whether or not they will be impacted by Medicare changes.  An increase in health care expenses could result in a need for access to additional cash.  With so much uncertainty right now, IRAs will provide easier access to funds whenever a need may arise.

Inability to do a Roth IRA conversion

     Some retirees are considering Roth IRA conversions so that they can have their accounts grow on a tax-free basis.  In the year of the conversion, there will be a tax payment required on the amount converted, but there will be no further taxes on the gains from that account.

     Most 401(k) plans do not allow for a Roth option.  If a retiree wants to convert all or a portion of the account to a Roth IRA, it has to be done outside of the 401(k) plan.

     It is important to remember that, in making the transfer, funds should go directly from the 401(k) plan to the new account.  If the check is made out directly to the account holder, there will be a 20% mandatory tax withholding.  Account owners under the age of 59 ½ will also see a 10% early withdrawal penalty.  Both of these withholdings are avoided in a trustee-to-trustee transfer.

     My daughter has a birthday coming up and she can’t be more excited.  She is so ready to be another year older.

     Although I enjoy my birthdays, I can’t say that I really look forward to getting older.  But no matter how old I get, my older relatives will still make light of my age.  They tell me things like, “50 is the new 30.”

     I used to think that they were being funny, but it’s unbelievable how true that statement really is.  If we look at how life expectancy has changed over the years, it’s not hard to believe that 50 is now middle aged in America.

     When America first became a country back in 1776, life expectancy was 35.  By 1900, life expectancy improved to age 47.  In just over 100 years, life expectancy rose by 12 years.

     Now look at this.  In the year 2000, life expectancy rose to age 77.  So, in this 100 year period, life expectancy rose by 30 years.  That is a remarkable jump – almost a triple jump – from the last 100-year period.

     In a study by Hartford Financial Services, it was estimated that about 18% of 65-year-old men today will live to age 90 or beyond.  The same study suggests that 29% of 65-year-old women will live past age 90.

     The bottom line is that we are growing old gracefully.  We are spending just as much time in retirement as we did in our working years.  Psalm 92:14 rings true.  It reads, “They will still bear fruit in old age; they will stay fresh and green.”

Are you prepared?

     The question to ask ourselves is, Have we taken the necessary steps to ensure that those retirement years will be comfortable and enjoyable?  It's not just about making sure that we don't have all of our eggs in one basket.  Are we financially ready for the long road ahead?

     There used to be a three-fold method for planning for retirement: pensions, Social Security, and personal savings.  That may not work anymore.

     Pensions are a thing of the past.  Companies are freezing or closing pensions and replacing them with 401(k) plans that require employee contributions.  If we don’t personally contribute to the 401(k) plan, we cannot expect to see a big retirement nest egg when it’s time to take that step.

     We must also remember that our Social Security system started in 1937.  It promised to provide lifetime income to Americans back when people were only living into their 50s and 60s.  That worked then.  It doesn’t work now.  Don’t count on the Social Security system to keep you financially set in retirement.

     As Christians, we know that everything will all work out for good.  God will provide where the system does not.  Isaiah 46:4 says, “Even to your old age and gray hairs I am he, I am he who will sustain you.  I have made you and I will carry you; I will sustain you and I will rescue you.” (NIV)

     But, we have to do our part as well.  We have to put more emphasis on the third leg – the personal savings.  Don’t put so much energy on the present that you don’t prepare for the future.

     I came across a survey sponsored by Sun Life Financial that really raised some concerns about retirement planning.

     Sun Life Financial interviewed a group of people who retired involuntarily.  The results of the survey were overwhelming.

     Approximately one in five of the retirees interviewed were forced into retirement well before the age that they had anticipated retiring.  The average retiree left the workforce eight years early.

     The two main causes of the early retirement were 1) layoffs or downsizing and 2) illness or injury.

     For 70% of these retirees, the forced retirement greatly impacted their retirement plans.  Most of the retirees were contributing to IRAs and employer-sponsored retirement plans.  Although we have considered tips to create a better retirement account, this may not be enough.  They had hoped to have at least $1 million saved before retiring, but the average retirement account only had about $500,000 when the retiree left the workforce.

Lesson learned: Stop procrastinating!

     This survey calls us to question our current preparations for retirement.  Are we maximizing our retirement planning right now, or are we putting it off until later?  As we can see from the survey (and as the Bible mentions to us), we aren’t promised tomorrow.  Procrastination could put you and your family at risk if something happened to your current occupation.

     Sure, if your company decided to layoff or downsize some departments, you may be able to find another job.  But we have seen recently that, for many, this has not been as easy as it used to me.  Thousands and thousands of workers have been job hunting for months.  Some have been unemployed for over a year.

     What about those retirees who experienced an illness or injury?  What if physical limitations kept you from getting another job in any area?

     Many of these retirees were too young to start drawing on Social Security to help supplement their retirement nest eggs.  If we are solely or largely depending on the government to be our source of retirement income, we will be greatly disappointed.  We have to save for our own retirements so that we have access to money (without penalty) before Social Security benefits kick in.

     With smaller amounts of money to draw upon, the retirees in the survey have been forced to change their lifestyles and cut back on expenses.  For many people, cutting back on living expenses can be extremely difficult.

     Although I strongly recommend emergency funds that hold three to six months’ living expenses, the reality is that few people have any type of emergency money set aside.  How many of us could keep up with a mortgage payment if our paychecks disappeared?  Our whole lives could be turned upside down in an instant.

     Retirement planning is not something to do when retirement gets close.  It should be initiated as soon as we are hired on.  Sure, goals may change, but it is better to have something than to be caught off-guard and left with nothing.  If you’re not sure what to do or how to start, just talk to someone who can help guide you.