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Strategies for a Worry-Free Retirement

Author: Ethan Harris

Retirement is perhaps one of the greatest s of worry for many working Americans. A large percentage of savers today are not at all sure that their current portfolios are going to be enough to cover all of their expenses after they stop working. However, there are several strategies that can help you to greatly reduce the chance that your nest egg will run dry before you do. The path to a secure retirement can start with the following simple steps.

Manage Debt

If you have accumulated a lot of high-interest debt from credit cards or consumer loans, then make a priority of paying those off first. This is smart retirement planning because you are getting a guaranteed rate of return on the debt you pay off. For example, when you pay off a credit card that was charging you 20% interest, then you have essentially earned a 20% rate of return, because you were guaranteed to have to pay it as long as there was a balance due. However, most planners will tell you that it's not wise to liquidate your current retirement savings in order to pay off debt, so just let that continue to grow while you divert your current income to eliminating your liabilities. (For more, see: Expert Tips for Cutting Credit Card Debt.)

Other strategies include consolidating your student loans with a company such as Social Finance and paying off your house before you stop working. This last idea is perhaps one of the most powerful ways to eliminate worry from your retirement plans, because your home is a tangible asset that you can still live in and use even if its market value drops to zero. Your retirement dollars will also stretch considerably further when you don't have to worry about making a house payment every month. (For more, see: How to Avoid Inheriting Debt.)

Accelerate Benefits

The need for long-term care in America has grown exponentially over the past several years, and the costs associated with this type of care have also continued to skyrocket. Statistics show that the average 60-year-old man now has at least a 50% chance of needing some form of long-term care before he dies, and the odds are even higher for women. But this expense can be financially devastating for those who have no real insurance coverage of any kind to pay for it. Unfortunately, the cost of long-term care insurance itself has also risen to the point where many middle-class Americans can no longer afford it either. (For more, see: Long-Term Care Insurance: Who Needs It?)

The answer to this dilemma may be found by purchasing a permanent life insurance policy that contains accelerated benefit riders that can be used to pay for critical or chronic illness expenses. In most cases, the chronic illness benefit is triggered when the insured becomes physically unable to perform at least two out of six activities of daily living (ADLs) for more than 90 days. The policy will then pay out a fixed monthly benefit until the insured either dies or becomes able to function normally once more or the dollar limit in the policy is reached. Then when the insured passes away, the remaining amount of coverage in the policy is paid out as a death benefit. The percentage of the face amount that can be used for accelerated benefits such as critical or chronic illness will vary from one carrier and product to another. These riders are available in both term and permanent policies, but think carefully before buying a term policy in order to secure the accelerated benefit protection. If that policy should lapse or become unrenewable in your later years, then you will be left without any protection at the point when you will be most likely to need it. (For more, see: 6 Tips to Stop Worrying About Retirement.)

Analyze Pension Options

If you are lucky enough to be privy to any kind of guaranteed pension payout during retirement and you are married, then you may have a choice as to the form of payout that you receive. You may be able to choose between receiving a higher monthly payment for life with no survivor benefit or a lower payment with a residual benefit going to your spouse. The right answer to this choice can involve many factors, including both your and your spouse's current health and projected longevity, financial situation and life goals. (For more, see: Is Your Defined-Benefit Pension Plan Safe?)

Have a Plan

Seeking professional help is one of the most obvious steps you can take to ensure that you are on the right track with your retirement planning. Having a written financial plan will allow you to see much more clearly what you need to be doing and whether what you are doing now is correct. A financial advisor can help you to create and maintain an investment portfolio that fits your objectives and risk tolerance. (For more, see: What Is Your Risk Tolerance?)

Today's financial planning programs can also help you to see the tax and estate planning ramifications of various choices that you might make, such as opting for a single life payout on your pension and buying life insurance as an alternative to taking the survivor benefit.

Crafting an effective estate plan is also important so that you don't have to worry about what will happen to your assets when your time comes. Wills, trusts and powers of attorney may all be necessary in order to ensure that your affairs are handled smoothly and quickly when the need arises. A simple letter of instruction that lists all of your assets as well as their locations, passwords, account numbers and the contact information of all related parties such as brokers, attorneys, bankers and insurance agents will also greatly simplify and accelerate the estate planning process for your executor. (For more, see: Estate Planning: 16 Things to Do Before You Die.)

The Bottom Line

Planning for retirement can be very stressful for those who fail to prepare themselves adequately. But those who start early and plan ahead can sidestep many potential obstacles in their path to a secure retirement. Following the strategies listed here will take you a long way towards a worry-free retirement. For more information on retirement planning and what you need to do to make sure that your future is secure, consult your financial advisor or look for one on the Financial Planning Association website. (For more, see: Closing in on Retirement? Read These Tips.)

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