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Friday February 9, 2007

Think — and plan — before you jump into retirement

from ara content

Retirement planning is an emotional subject. Many people fear they are not saving enough, while others are confused about their investment options or unsure if their savings are invested aggressively enough. Still others may be saving and investing wisely, but are concerned they simply started too late.

But for everyone, there is a 10-year period of time — the five years before and the five years after retirement — that is especially critical. Prudential Financial has dubbed this the “Retirement Red Zone,” and has issued a recent research study bearing the same name.

“Retirement planning is all about managing risks — such as the risk of inflation eroding retirement savings, the risk of a market downturn depleting needed assets, the risk of a major illness or disability, or longevity risk — the risk of outliving your retirement assets,” says David Odenath, president of Prudential Annuities.

“The Retirement Red Zone is a particularly important time when it comes to managing risks, because, for many, it’s the time they can least afford them. It’s also especially significant for women, who tend to have fewer retirement resources of their own and who are more likely to be on their own at some point in their retirement years.”

Key survey findings include:

• Sixty three percent of participants were not aware of the long-term impact of investment losses experienced in the 10-year “red zone.”

• If faced with an investment loss just before or early in retirement, 41 percent said that they would expect to keep working or return to work.

• Nearly seven in 10 said they needed to rethink how conservatively or aggressively they should invest.

• Over half wondered if they should be seeking out better financial advice.

• Fifty-one percent will decide whether to purchase products that generate retirement income during this time frame.

There are several ways to prepare.

Whether you are just starting out in the work force or halfway to retirement, the most productive thing you can do is seek professional advice. Meet with a financial professional to analyze your current investment strategies and become educated on products and services that offer long-term retirement security.

Also, consider long-term care needs. The right long-term care insurance plan can help you protect your retirement funds and give you the flexibility to be involved in decisions about your future care. The cost of long-term care insurance depends on your age, the benefits you choose, the length of coverage and other factors.

If you have dependants, life insurance is a factor to take into account. Take stock of everything you do for your family so you can understand the value of what you provide in addition to your income. Life insurance can help ensure your family will be taken care of,

Cash reserves are sometimes an overlooked component in the retirement plan. It’s a good idea to set aside cash that can carry you for several years, while investing the remainder in your growth portfolio. Review your accounts every six to 12 months to maintain a healthy balance between investments and cash reserves.

Investigate annuities. An annuity with a guaranteed lifetime annual payout can help insure you against poor returns on other investments and help protect you against the risk of outliving your assets. As with every other potential scenario, there are many personal variables, but in general, the combination of delaying Social Security and purchasing an annuity can be a powerful planning solution to manage longevity and investment return risks.

If your home is paid for when you retire, and you choose to stay in it, you may want to look at a reverse mortgage. Reverse mortgages pay you a monthly income out of your equity and the money does not have to be repaid as long as you are living in the home. Upon your death, the loan would be paid out of the proceeds from the sale of your home. Meeting with a financial advisor can help you determine if this is a viable option for you.

Because there is no one-size-fits-all solution for retirement planning, many people seek professional support to determine a plan that will maximize and protect retirement assets.

In addition, many retirement-planning tools and calculators can be accessed free of charge on the Internet.

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