WASHINGTON | Wed Apr 18, 2012 3:00pm EDT (Reuters) Usually, when people talk about someone "going through a stage" they are talking about a toddler or a teen. But there's another age at which people go through a key transitional period, also marked by angst and rebellion: Call it pre-retirement.
It sets in by the time workers hit their late 50s, even though they are told they should work for another decade or so to maximize their retirement security. But it hits for real about five years before an expected retirement date. It's the period that Prudential Financial calls "the red zone" and another insurance company, Allianz Life Insurance Company of North America, calls "the transitional phase."
Both companies talk about that pre-retirement period in the context of selling annuities — insurance products that offer tax benefits and lifetime income in exchange for large sums of money. But buying insurance or some other financial product is the easy part of retirement planning; the hard work should happen first.
Here are some guidelines to offer workers to get them athrough the strain of “pre-retirement”:
- Get specific about life planning. This can be the most challenging part of the exercise; the rest is just numbers. A variety of books and websites claim to be able to help with lifestyle planning. Mutual fund company T. Rowe Price has a new interactive online exercise called "Ready 2 Retire" that walks older workers through some of these questions.
- Become a Social Security savant. The program is complicated, but will make a significant contribution to almost everyone who retires in the United States. There are a series of strategies employees can use to maximize benefits, especially if they are married. Couples can tag-team their benefits, claim them and suspend them, defer them and more.
It makes sense to get a good numbers person, an actuary or an accountant, who understands all of this, to help them figure out which strategy is best.
- Do a health-care plan. Private health insurance will change over the next few years, regardless of whether health care reform is permitted to stand. Still, workers can determine if they’re covered for gaps before Medicare kicks in at 65 and afterwards. They also need to realistically assess their health, their need to be near certain medical facilities and prescription needs.
- Take an asset inventory. Retirement accounts, savings, company retirement plans, home equity and more — workers need to assess which of those assets will fund early retirement, which will fund late retirement and how much each will allow them to spend.
- Study taxes. Learn about the tax properties of those various baskets of money — specifically, which ones will provoke taxable events upon withdrawal. Get educated about state and local tax breaks to retirees. Taxes are just one line item in a family budget, but retirees have a lot of options for managing their tax bills.
- Organize debts. It may be okay to go into retirement with debts, especially something like a very low interest rate mortgage. But not if you have to withdraw tax-deferred money to make payments on high-interest loans.
© 2011 Thomson Reuters. Click for Restrictions.
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