When Shirley Ashcraft turns 66 in June she wants to celebrate by retiring from her receptionist job.
In the four years that she's worked for the Greater Vancouver Chamber of Commerce she's socked away savings, but it's been too little too late.
Ashcraft didn't plan it this way. It was divorce that pulled the financial safety net out from under her.
But it is what it is, so Ashcraft has been wracking her brain trying to rejigger the variables in her life. So far, none of the combinations are adding up to create the financial security she wants.
Her monthly expenses will be about $2,200, including Medicare supplemental insurance. Each month she expects to receive $1,076 from Social Security, $700 from her ex-husband's pension and a $149 pension from a former job.
She figures she's $400 short of maintaining her lifestyle without a job.
Then there's the question of where to live. She has about $70,000 in equity in her Salmon Creek condo, but fears it's losing value. She's considering moving to a small community near Seattle to be closer to two of her three children or to Tennessee where she grew up.
Complicating the decision to move is an offer from her children. They've said they will buy her a home, but haven't committed to details. If she goes that route, Ashcraft plans to use her condo's equity to purchase the property and will let her children pay the balance.
The Columbian put Ashcraft together with a financial planner and insurance expert to figure out a way around four obstacles in her retirement planning:
Obstacle 1: Figuring out monthly expenses in retirement
Ashcraft estimates that her expenses will rise in retirement, but she's not sure by how much. Her budget could also change if she moves.
• What the experts say:
The first step for anyone considering retirement is to determine how much money will be needed each month for living expenses, said Vancouver certified financial advisor Debbie Johnson.
Many financial institutions offer online forms to help devise an estimate. The form Johnson uses can be found here.
Be honest about expectations for life after retirement, Johnson said.
That includes factoring in expenses such as automobile maintenance, vacation travel and even small luxuries such as having your nails done weekly.
Johnson said Ashcraft may be able to retire at 66, but she will need to firm up plans on where she wants to live, ensure she'll continue to receive the $700 monthly payment from her ex-husband and get a commitment from her children on help with housing costs.
Obstacle 2: Overcoming inadequate savings
As Ashcraft runs through retirement scenarios, she's uncertain how much better off she'd be if she continued to work for a while after her 66th birthday and supplement her savings. She also wonders if she could use her retirement accounts to supplement her income.
• What the experts say:
Regardless of when she retires, Ashcraft needs to streamline her investments to make the most of what she owns.
She has $36,000 in three retirement accounts that should be consolidated into one, unless she'd face fees or penalties, Johnson said. By doing that she'll spend less time managing the funds, pay less in fees and consolidation will pay off later by reducing her tax liability. At the age of 70½, IRA account holders are required by law to begin withdrawing funds. The tax rate is 50 percent on funds that do not meet the minimum withdrawal amount, which is based on the IRA's size.
"Each one is different but a lot of people don't realize most accounts have custodial fees ranging from $10 to $50 each year," Johnson said. "She could save $20 to $100 in fees each year by consolidating."
Johnson said it also was crucial for Ashcraft to contact her ex-husband and get him to commit in writing to continue sending her $700 a month. A notarized statement, ideally with one of the children as a witness, would be recommended. The document could be facilitated by a lawyer, as well.
"Too many things can happen if it's not in writing," Johnson said.
Ashcraft could tap her IRA accounts to fill some of her immediate retirement needs. One option is to use the funds now to cover the monthly deficit between her cost of living and her income after retirement.
A monthly withdrawal can be set up to automatically move into her checking account from the IRA accounts, and could be as little as $100 to $200 a month, Johnson said.
But she doesn't recommend that course of action.
Instead, Johnson advised Ashcraft to add to her $6,000 in additional savings. One way to do that would be to continue working for at least six months after her 66th birthday.
"Having a fund for emergencies is so important," Johnson said. "The more you can bank the better."
Ashcraft becomes eligible for full Social Security benefits in June. At that time, she can continue to work and still receive Social Security benefits without paying a penalty. That additional income will enable her to rapidly build her savings.
There are several helpful online tools prospective retirees can use to determine what Social Security and Medicare benefits they'll receive and when:
• The Social Security Administration provides a Benefits Eligibility Screening Tool at connections.govbenefits.gov/ssa_en.portal, which calculates an individual's eligibility for Medicare, Social Security and Supplemental Security Insurance. Medicare provides a similar service at medicare.gov.
• To sort out the pros and cons of collecting Social Security benefits before full retirement age or delaying benefits visit ssa.gov/retire2.
Obstacle 3: Securing adequate medical insurance
One of Ashcraft's unknowns is what her medical insurance costs will be when she retires. That has made budgeting for retirement difficult.
• What the experts say:
Alex Gordon, an Americorp Vista SHEBA (Statewide Health Insurance Benefits Advisor) coordinator in Clark County, told Ashcraft it appeared she was currently paying too much in Medicare premiums and should contact the local Social Security office to have the fees evaluated.
"Shirley should be paying $96.40 a month based on her income," Gordon said. "That's what anyone should be paying who makes less than $82,000."
Ashcraft has been paying about $240 every two months, she said.
Ashcraft also wants supplemental insurance to cover medical expenses not picked up by Medicare.
There are more than 60 plans available to Clark County residents through the Medicare Advantage Plan, Gordon said.
Premiums range as high as $300 a month, based on the provider and level of coverage.
The list of providers available in Clark County is available at medicare.gov. Click on the Health Plans 2008 button, go to Find and Compare Medical Health Plans, click on Begin General Plan Search and enter your zip code.
For those retiring before age 65, Gordon suggests talking with their company's human resources department about extending health care benefits through Consolidated Omnibus Budget Reconciliation Act (COBRA) insurance.
Employees are eligible for COBRA, which provides the same medical coverage received while working, for up to 18 months. Spouses also are covered.
When shopping for insurance, retirees should decide if they want to see the same doctors and determine if those doctors accept the plan they are considering buying.
Coverage during travel is another issue. Some plans may not cover medical expenses incurred outside of Clark County or the state.
A person's health at the time of retirement also can determine which plan to choose.
For healthy retirees, a plan with no premiums, or low premiums, may be best. The no- or low-premium plans usually have higher co-pays when seeing a physician. The higher premiums usually have lower co-pays. Higher premium plans, however, can also offer perks such as gym memberships, Gordon said.
Plans also vary in how they cover pre-existing conditions.
Additional information on supplemental insurance is available at www.insurance.wa.gov. Go to types of insurance and click on Medicare.
Obstacle 4: Deciding on the best place to live
Ashcraft's decision about where she wants to live when she retires is complicated by the uncertain real estate market.
• What the experts say:
Johnson recommends that she keeps her condominium for at least six months before selling.
Where you live "is a big factor in your retirement," Johnson said.
Given Ashcraft is uncertain about her various options, selling now would just compound her risk.
"The energy it will take to put the condo up for sale and move and rent a place for a while would not be worth it," Johnson said. "Renting will be about the same as what you are paying right now."
Johnson suggested Ashcraft talk with her three children who have offered to buy a home for her. The home would be an investment for the children. Any equity Ashcraft receives from the sale of the condo would be applied to the down payment on the home.
Among the factors anyone should consider when selecting a place to retire is the proximity to health care and hospitals, the weather, the cost of living and distance from family members.
Where to Retire magazine ranks the top places to retire each year, as do several other publications such as Money and Time magazines.
Retire magazine's analysis can be found at wheretoretiremagazine.com/freeinfo.cfm.
Email This
Larger Font
Print This
Smaller Font
