Becoming Financially Independent… Part Two

In Part One, we discussed how planning is the key for future living. We've learned how meeting the challenges of financial management will help to remove doubt. We learned that it also increases options. It's understood that both partners will need to be 100% involved in the planning of their retirement. We've also discussed the importance of managing what you own and what you owe. Through this we now have a clue on how preparing a budget and cash flow statement will help in identifying crucial gaps in income and finding ways to cut expenses. In Part Two, we'll dig deeper into becoming financially independent...

Legal Matters

You can use several legal tools to maintain control over your affairs in later years. These will enable you to decide, while healthy and alert, what you want done in the event of death or disability. Be sure to discuss any arrangements with your survivors to save them from facing difficult decisions and to give them peace of mind, knowing they are complying with your wishes.

• Wills--If you do not have a current will, the state will decide how your assets are divided. This isn't the way you would want you money to be governed by any means. What happens is the court will decide where and how the funds you have will be divided. Such legal documents as Living or Revocable Trusts offer ways to avoid probate.
• Trusts-Let's say you are in a hospital in a coma. While I hope this scenario doesn't happen to you, having a trust can help you. This device lets you decide who would be responsible for your financial affairs if you became unable to manage them yourself. Trusts can be very beneficial to your financial picture.
• Powers of Attorney and Living Wills--Powers of attorney typically assign responsibility for financial matters to another person. Some apply to health care decisions as well. You can use a Power of Attorney or a Living Will to state in advance your wishes in case of an incapacitating or life-threatening illness. Doing so is essential if you want your family to know the circumstances in which you wish to decline life-support measures.

Relocating Or Staying Put

Where to live after retirement is a major decision. Perhaps you plan to relocate to a more favorable climate or to be near family. Research the consequences of such a move in terms of the basic cost of living, access to health care, and state and federal tax obligations. If you are considering the advantages and disadvantages of selling your home, whether or not you plan to relocate, these are some questions to ask:

• Can you afford monthly payments for mortgage, taxes, utilities, and maintenance?
• Will you or both you and your spouse be able and willing to take care the maintenance of the house?
• Is the house a suitable place to live as you grow older and become less agile?
• Will you need to draw on your home equity as a source of income or credit, or would you have more options if you sold the home and invested the proceeds?

In addition to owning a home or renting an apartment, a number of other housing options may be available in your community, many of which offer savings on housing expenses. These are some alternatives to consider:

• House sharing for the purpose of helping with chores or added retirement income.
• Group living in a private home or one sponsored by a social services agency.
• Accessory apartments, or mobile or manufactured homes, including ECHO (Elder Cottage Housing Opportunity) housing which, if zoning laws permit, can be installed on the property of an adult child or other relative.
• Condominiums or cooperatives that have the advantages of home ownership without the burden of maintenance.
• Retirement communities that may offer companionship, recreation, and sometimes medical and housekeeping services.

Special Considerations

An important part of financial planning is anticipating how to handle bad times. Prudent planning includes learning about public and private benefits programs. In most communities, governmental and private agencies offer services to help care for older persons, such as low-cost medical clinics, home health care, housing options, adult day care, and chore services. It can also be helpful to look into other options.

The local Social Security Administration office has information about entitlement programs such as Medicaid, disability insurance, food stamps, and Supplemental Security

Income. Ask about your state's Medicaid "divestment" rules which permit transfers of some assets to other people if done a specified length of time before applying for Medicaid (usually at least three years). Divestment is a precaution some take to avoid "spousal impoverishment" when all the family's assets are spent before a sick family member can be eligible for Medicaid assistance.

When arranging family matters, it will ease your survivors' emotional burden if you let them know your preference for funeral or memorial arrangements. You can handle these matters yourself by planning through a non-profit cooperative memorial society or by prepaying at the funeral home of your choice. If you decide to pre-pay, be sure you or your survivors can cancel the contract should you move or change your mind. This will help you along the way. Planning ahead and using comparative shopping skills can save thousands of dollars in funeral expenses.

Planning To Stay Independent

It's never too early to start retirement planning, and never too late to make adjustments in your financial situation. This helps in your retirement life in terms of having the finances you'll need for life after employment. Whether wealthy or not, it's probably more important for those who are not. Investigating your options and making practical choices now can allow you to stay in charge and meet future financial goals. This will help you make intelligent decisions later on down the road.

Estimating The Money Needed For Retirement

The money needed for retirement can best be determined after charting your current spending and reviewing records of your past household expenses. This is very important when figuring out what it will take for you to become financial independent. Not having this information can be deadly for your finances down the road. It's best to figure this in a notebook or journal. Here's what to include when doing this:

• Calculate your current expenses in categories for each expense. Make sure that your annual and semi-annual expenses are separated into monthly amounts.
• Make a decision weather you will spend less, the same amount, or more in each segment of your calculations after retirement. It's simple to do this if you make a decision to stay at the same place you live in now before making the decision to retire. You'll notice that many of the same expenses will stay the same even after doing so.
• If you feel your expenses will increase or decrease, separate the amount in a different column based on the estimated dollar amount you plan on spending.

When calculating your future expenses, you'll find it's easier to forget things that will need replacing. These expenses can be planned into the pre-retirement budget. This is very important when considering the future goals of your plans. This should help you determine what you can look for in the future when planning for retirement.