Having the independence that you need when retiring is one of the most important things one must consider in a lifetime. Unfortunately, many people don't plan correctly. This can take a toll on your financial picture years later when you no longer can work or don't want to work any longer. Taking stock of your income and expenses now can pay for itself years later down the road. Here are a few tips that you can use to ensure you can be taken care...

As retirement approaches, it is important for every household to assess its financial identity (assess its finances). Waiting too long might mean missing one or more opportunities to preserve maximum financial independence in the future. To help get you started, see what you'll answer to the following statements:

• Do you talk regularly and frankly about finances and agree on goals and the lifestyle you prefer?
• Do you know your sources of income after retirement and how much to expect from each, and when?
• Do you save according to plan and shift from growth producing to safe income-producing investments?
• Do you know where your health insurance will come from after retirement and what it will cover?
• Have you reviewed your life insurance and considered other options such as converting to cash or investments?
• Do you have good credit history?
• Do you have a current will or living trust?
• Do you know where you plan to live after retirement?
• Have you anticipated tax consequences of your retirement plans and of passing assets on to your heirs?
• Do your children or other responsible relations know where your important documents are and whom to contact if there are questions?
• Have you executed legal documents, such as a living will or power of attorney, specifying your instructions in case of death or incapacitating illness?

The Key Is Planning

"If only I'd known then what I know now...."

Have you ever muttered something to this effect sometime in your life? Looking to the future is key to financial planning at any age, but especially in the decade or so before retirement. For many households, retirement is a time to fulfill dreams and delayed ambitions. It also can be a time of anxiety if you postpone thinking realistically about the ways your financial identity will change--income, savings, investments, credit, insurance, job benefits, and perhaps living arrangements. Meeting the challenge of financial management will help remove uncertainty and increase your available options. Both partners will need to be involved in retirement planning and may wish to discuss their plans with adult children.

Many people neglect planning. Some prefer to leave their financial decisions to the other partner, while others simply find it too difficult to talk about money. Whatever the reason, if you have not yet begun planning, you may want to seek pre-retirement planning advice from a professional or a community service organization.

Looking Ahead

The decade before retirement is a good time to take inventory of assets and obligations and make financial choices aimed at maximizing future resources. These years are typically a peak earning period and they offer the chance to reduce major debts, such as a home mortgage, and increase savings and income-producing investments. Households with combined expenses of educating children and caring for aging parents may find saving difficult during pre-retirement years. In these cases, making a realistic financial appraisal is more useful. These are questions you might ask yourselves:

• What are your sources of retirement income and how much will each provide-monthly or in a lump sum?
• Social Security
• Pensions, IRAs, Keoghs
• Savings and investments
• Sale of assets
• Home equity

Find out all the options for receiving your pension benefits and whether they are insured. Find out if pension benefits will be reduced if you receive Social Security. Read carefully and consider the consequences of signing any documents relating to a reduction in spousal pension benefits. One of you may need this income if the other dies.

When estimating how much income can be expected from these and other sources, remember to take inflation, taxes, and market fluctuations into account. Depending on your anticipated income potential, you may decide to postpone retirement a few years, or plan to work part-time.

The cost of serious or long-term illness is a major burden for many older Americans because Medicare does not cover all health care costs. If you consider buying ‘medigap' insurance to supplement Medicare, shop carefully for a policy that supplements rather than duplicates Medicare coverage. Long-term health insurance for nursing home or home health care is new. Examine all the terms of any such policy before you buy.

Managing What You Own And What You Owe

Professionals say that retirement income should be 60-80 percent of current income to maintain the same Standard of Living. If your financial picture does not correspond to this guideline, you might prepare a budget and a cash flow statement based on income and expenses during the preceding 6 to 12 months in order to identify gaps in income and find ways to cut spending. When thinking on the expense side:

• List current expenses such as housing, food, healthcare, transportation costs, and other financial obligations.
• Include a contribution to savings. Experts recommend a reserve fund to cover 6 months of basic expenses.
• Itemize personal expenses for such things as clothing, travel, entertainment, and hobbies.
• Develop habits such as price shopping, menu planning, using coupon clippings, and monitoring your use of credit to guard against overspending.

On the income side:

• Think through contingency plans in case expenses begin to outpace income or one partner becomes seriously ill.
• Remember that credit histories in your individual names can be invaluable in retirement, or in the event of widowhood or divorce. Credit can be essential to meet unexpected or emergency expenses.

Federal regulations prohibit age and gender discrimination in the granting of credit. Lenders must treat all income alike, whether from employment, retirement benefits, or other reliable sources. Still, it may be easier to get a national credit or charge card in your own name while you are employed. If you have never been employed, you can still build a credit history by becoming an "authorized user" on your spouse's account.

• Consider selling assets or converting life insurance into cash as another possible way to meet expenses.
• Investigate Home Equity Conversion (HEC) as an option if you own or nearly own your home and need money. There are several kinds of home equity conversion loan plans, including Deferred Payment Loans and Reverse Mortgages, where you borrow against home equity and receive monthly or periodic cash payments.

Unlike home equity loans or lines of credit, reverse mortgages involve no monthly repayments as long as you live in your home or until a predetermined date. These plans do involve costs for application fees, closing costs, and interest, and they may affect eligibility for public benefits programs such as Medicaid. Generally, you can decide how to spend the money. Reverse mortgage plans are not all the same, so it is important to read the loan documents carefully. Check with a trained HEC counselor, other financial advisor, or an attorney before deciding whether home equity conversion is appropriate.