For seniors who can see retirement looming on the horizon or who have retired recently, a careful inspection of retirement plans and last-minute fine tuning are critical to ensuring a smooth transition into the twilight years, financial planners here say.


Navigating through the five years before and after retirement requires taking stock of ones financial picture and retirement goals and then adjusting accordingly, planners say. When finalizing their financial plans, people in that age group also must take into account societal and economic changes that make their retirement landscape look much different from that of their parents. Some of the biggest changes include escalating health-care costs and the gradual disappearance of employer pension plans.


For people who are close to retiring, now is the time for financial dusting off, and for ramping up and getting ready to do it, says Greer Bacon, a certified financial planner here who owns Asset Planning & Financial Management Inc. The margin for error gets much smaller in retirement.


For seniors within five years of retirement, its important to create a financial plan that evaluates debts, assets, and savings rates to come up with at least a preliminary retirement budget, says Joel C. White, a certified financial planner here who owns Joel C. White Co.


When creating a budget, seniors must consider where they will live during retirement, since the cost of living differs depending on location, White says. Some might elect to sell their home and downsize, while others might decide to become snowbirds and live in a warmer climate during the winter months, he says.


Once a retirement budget has been established, debt management should be a top priority for pre-retirees, White says. He says retirees have an easier time adjusting to their income and investments during retirement when they have eliminated their debt.


Health-care expenses are eating up a larger share of seniors budgets than in the past, Bacon says. Some people are choosing to delay retirement not because they lack the money, but because they need the medical coverage, she says.


Since retirees arent eligible for Medicare until theyre 65, people who retire before 65 should make sure they maintain their group coverage through their employer or can get an individual medical policy, she says. Once retirees reach Medicare age, most need to pay the extra monthly premium for Medicare Part B in addition to Part A, which is free, as well as buy supplemental or Medigap insurance to back Medicare up, she says. Bacon advises clients also to enroll in Medicare Part D right away, even if they dont currently use a lot of prescription drugs, because they incur a penalty if they defer enrollment until they really need it.


Medicare doesnt cover long-term care insurance, so unless a retiree qualifies for Medicaid or is wealthy enough to incur the costs of long-term care without insurance, which in Spokane amounts to about $65,000 a year, they should buy long-term care coverage, Bacon says.


Some retirees are able to reallocate funds from a life insurance plan to a long-term insurance plan, but others still need to keep their life insurance coverage, White says.


The risk of long-term care expenses is the biggest risk for retirees, he says. People need to realize that by not buying long-term care insurance, theyre taking the risk upon themselves.


Social SecuritySeniors can start drawing on their Social Security benefits when they turn 62, but cant receive full benefits until they reach the retirement age theyve been assigned by the federal government, which for current retirees is 65, Bacon says. If a senior plans on working after they hit their assigned age, they should evaluate whether they should take the benefit at that point or defer until no later than age 70 and receive a 6 percent to 8 percent bump in their benefits, Bacon says. If a person plans to retire at 62, it makes sense to draw Social Security benefits right away and let investments continue to grow rather than dipping into the nest egg immediately, she says.


As for payout options for pension benefits, Bacon advises clients to choose the survivor-benefit option rather than a single life-expectancy benefit from a pension plan. Although a survivor-benefit option reduces the monthly income from a pension, it ensures that a spouse will continue to receive income if the participant in the pension plan dies.


White tells clients that if they choose the single life-expectancy option, they also should have life insurance in force so the surviving spouse has funds available once the pension checks end.


Bacon adds seniors need to understand that their employer pension plan typically doesnt adjust annually for inflation, as do Social Security benefits. As a result, they must dip more into their personal nest egg to offset inflation, she says.


Social Security simply will not provide your only source of retirement income, and even if youre lucky enough to have an employer pension, most wont be adjusted for inflation, Bacon says. Personal savings are absolutely critical.


Dan Murphy, vice president of Bozarth Investment Management Inc. here, says that as life expectancies lengthen, pension plans become less common, and Social Security benefits prove inadequate at covering basic expenses, annuities are gaining popularity. An annuity is an insurance product that promises a guaranteed lifetime stream of income in exchange for a lump-sum investment.


It might make sense to put part of your assets into a lifetime income option to make sure youre not applying for the Wal-Mart greeter job when youre 85, Murphy says.


White says that when clients want to buy an annuity, he estimates what their basic living expenses will be during retirement so they can annuitize part, but not all, of their retirement assets. The advantage of buying an annuity instead of tapping investments over time is that its guaranteed, while investments can perform worse than expected, he says. Also, an annuity prevents people from spending their money too fast because it issues a set payout every month, he says.


Although annuities are becoming more popular, many clients are still wary of them because they dont want to lock up their assets, and the rate of return on annuitization isnt as favorable as other investment options, he says.


For some folks who are getting low on money or want added security, it makes sense to annuitize, White says. If youve budgeted well and kept your debt down, you dont need to.


Not too conservativeMurphy says pre-retirees should keep a sizable chunk of their portfolio in stocks, because people are living longer, and keeping too much money in bonds wont produce a rate of return that will cover expenses adequately for the long term. He says the standard in financial planning now is to assume a client will reach age 100.


Unless you have a large amount of assets, you cant get too skinny on the equity side of your portfolio, Murphy says. You still need to be somewhat growth-oriented.


White says he tells seniors to start transitioning their portfolio to more conservative investments five years before they retire. While seniors should be less aggressive in their investments than they were in their pre-retirement years, they shouldnt give up on equities altogether, he says. Also, seniors should make sure they take distributions from investments that wont drop during a market downturn, such as a conservative bond fund or money market account, he says.


Bacon advises seniors to invest 50 percent to 60 percent of their assets in stocks or stock funds, and 40 percent to 50 percent in bonds or bond funds. She tells seniors to withdraw between 3 percent and 4 percent of their retirement savings a year.


When preparing for retirement, seniors also should simplify their finances by consolidating similar accounts, such as several 401(k) plans, so that they can get a good picture of what they have and where its located, she says. Its also important to review estate planning documents, such as wills, designated powers of attorney, and medical directives, to make sure theyre current, she says. Additionally, seniors should review the designated beneficiaries on their retirement accounts, annuities, and life insurance policies, White says.


Seniors should calculate their future retirement plan every few years before they retire, White says. Sometimes, they find out they have to work longer than they thought, retire some debt, or adjust their budget so they can save more, he says. Semi-retirement is becoming a more popular option among seniors who still need some income and want to keep their health-insurance plans longer, he says.


Seniors should review their financial plan four years after they retire to make sure its still viable, White says.


If a client is struggling to pay basic living expenses under their retirement plan, White sometimes will advise they take out a reverse mortgage on their home to unlock some equity. They also can downsize their home or go back to work on a part-time basis, he says. If they havent drawn Social Security benefits yet, they can continue to delay until they reach age 70, he says.


Contact Emily Proffitt at (509) 344-1265 or via e-mail at [email protected].