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retirement finances

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Five Ways to Avoid Outliving Your Money

When you do not know how many years you have left, and few of us do, thoughts of outliving your money can leave you feeling helpless and a little afraid. Here are five ways to put your money’s power back in your hands.

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1) Know where you stand. If you have not done any estate planning, start now. If it has been a few years since you have consulted your estate plan, re-examine it. Know what will effect your money. What are your tax breaks and penalties? Social Security is the one benefit most people count on, but will it be enough? Did you spend a portion of your career on the railroads or as a public employee? Will that effect your Social Security?

If you don’t have at least 35 years of covered Social Security earnings, you may disappointed in your returns and may want work until you are age 70. Do not know what is in your Social Security account? Make a written request or find out online at www.ssa.gov.

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2) Opt in for the company pension. And do not opt for a lump sum! A company pension can mean extra monthly income. Even if your company goes out of business, there is a good chance you’ll still receive your benefits. Most private sector plans are insured by the Pension Benefit Guaranty Corporation. Lump sums are not insured. If you do decide on a lump sum, be very prudent with it. It can run out quickly.

3) Consider annuities and long-term care insurance. You can let an insurance company handle parts of your retirement. Health care can be one of your biggest costs. Long-term care insurance can ease that burden (the ideal time to buy it is in your late 50s). Insurance companies can also help with annuities. Give them a chunk of your savings, and they will give you a monthly payment for life.

Keep in mind the trade offs, though. Costs and fees are high. With an annuity, you will lose access to your money. With long-term care insurance, you may run into benefit limits.

4) Go into retirement debt free. Use those credit cards wisely. Eat at home more often. Save gas by walking or biking or car pooling. Volunteer. This is a good way to be part of your community and to access local culture. If you can, pay off your house mortgage. That will eliminate your biggest monthly bill, and you can tap into its equity later when you have an emergency.

5) Save and invest wisely. Ideally, keep five years of fixed expenses in a liquid asset like a money market fund or a CD. There is little return, but you will have a have an easily accessible rainy day fund. Be systematic about savings withdrawals. Draw no more than 3-4% per year. If you do not have an IRA, get one. If you do have an IRA, nourish it. $500 a year is not enough. If you want to be in the market, consider an investment trust. Avoid the quick buck and look for a steady track records.

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