- The Washington Times - Tuesday, December 5, 2000

Planning for retirement is not a one-time event but rather a continuing process of defining and refining goals and values. It requires a great deal of thought to determine not only the financial aspects of retirement, but the psychological effects as well.

R.H. Trowbridge III, a chartered financial consultant, says the new school on the leading edge of financial planning is "values-based." The planner asks a series of questions and helps prospective retirees define their values.

"It's after you get beyond the mechanics; you really want to find something bigger," he says. The planner then will map out a strategy to accomplish the stated goals.

Unless retirement planning is broken down into manageable pieces, it can seem overwhelming. The good news is that a lot of information is available, both on the Internet and in the library.

AARP's Web site (www.aarp.com) has a link to its investment brokerage firm (www.aarp.scudder.com), where the following "Seven Steps Toward Planning for Retirement" were highlighted.

• Calculate how much money is needed. Multiply annual gross income by 75 percent to determine an estimate of retirement income required. Examine all expenses.

• Be aware of the effects of inflation. Make sure investments grow at a pace faster than inflation; otherwise money could be a problem down the road.

• Know where the money will come from and how much to expect. Three basic sources include Social Security, a pension plan, 401(k) and investment accounts or personal savings. Social Security provides approximately 20 percent of income for persons older than 65 with income higher than $30,777, according to the Social Security Administration.

• Make sure retirement income is enough. Don't forget to factor in the impact of inflation on estimated retirement income and investment returns. Compare the numbers after inflation has been added to see if there is a gap between income and expenses.

• Close the gap as soon as possible. Make lifestyle or budgetary changes to allow more contributions to investments. Think about postponing retirement for a few years to accumulate more assets. Or rethink retirement expenses and revise the investment strategy. Reduce debt by paying off credit cards. Plan to work part time in retirement.

• Determine whether investment principal will be needed for retirement expenses. Most retirees will have to draw down some of the principal to meet their needs during retirement. Be sure the money withdrawn does not deplete the assets too soon.

• Invest wisely. Financial planners suggest diversifying among stocks, bonds and cash equivalents (certificates of deposits, money-market funds, savings). Review investment plans at least once a year.

The Social Security Administration (www.ssa.gov) also offers valuable information on its Web site or by calling 800/772-1213. The Web site explains how to apply for benefits and allows filing on line. The statement of earnings also can be reviewed on line.

The reduction in benefits by birth year if one is retiring early also is explained. Cuts range from 20 percent to 25 percent for anyone born before 1943. For anyone born in 1943 or later, the retirement age jumps to 66, and cuts will range from 25 percent to 29 percent. Persons born in 1960 and later will take a 30 percent cut in benefits by retiring before age 67.

Another piece of sage advice is to apply for benefits three months before your birthday. In the year when retirement is planned, contact Social Security to determine the best month to start benefits.

The site also advises signing up for Medicare three months before reaching age 65. Otherwise, Part B insurance could be delayed and a higher premium applied. Medicare has two components Part A, which covers hospital care, a nursing facility, home care, hospice care and blood work and Part B, which is optional coverage for doctors, lab fees, outpatient hospital or ambulatory surgical procedures.

For most Social Security recipients, Part A is free but Part B is optional and requires a premium. For more information, visit the Health Care Financing Administration's site (www.hcfa.gov) or Medicare's site (www.medicare.gov). There is also a Medicare hot line at 800/638-6833.

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