By U.S. Rep Lloyd Doggett

Many of us make New Years resolutions to go to the gym, or eat fewer sweets.  But this year, consider making fiscal fitness your New Years resolution.  Seniors often face a difficult transition when they retire and move to a fixed income.  To help make that transition more successful, the Federal Deposit Insurance Corporation (FDIC) has published the “Fiscal Fitness for Older Americans” guide that can help all seniors better manage their finances in their retirement.

Making the most of your money

Seniors today are living longer, which means they must also be able to support themselves on a fixed income for a longer retirement.  The FDIC reviews a number of sources of income seniors tap to make the most of their retirement – and where the potential stumbling blocks occur. 

·       Social Security and pension benefits.  Decide when to tap the money.  As a general rule, early retirement will out pay the same amount over a lifetime, but in smaller increments to take into account the longer period you will receive them.

·       IRAs, 401(k)s, and other retirement savings plans.  Consider holding off on using these funds a long as possible so they can continue to grow after you retire.  Set a target annual withdrawal rate with the help of your financial advisor, and make sure your finances are diversified.

·       Credit cards.  While helpful in emergencies, be wary of carrying a high balance from month to month, which will incur high interest charges.  Some seniors also have too many credit cards, creating more opportunities to take on debt.  Too much debt can make it harder in the future to secure a loan or insurance; it can also be hard to keep track of multiple monthly payments.

·       Home Equity Loans and Lines of Credit.  These can be a significant source of income, but should be used wisely for expenses such as home improvements or other services with long-term benefits.  Poor use of such a loan – a vacation, for instance – that does not produce future value, could ultimately result in your losing your home if you cannot repay the loan.

·       Reverse Mortgages.  These should be used as a last resort.  Available to people over 62 years old, reverse mortgages are home equity loans on which the principle and interest are due when you move, sell your house, or die.  Because they reduce the equity in your house, and potentially the inheritance you leave, they should be used cautiously.  Often they are used to cover major medical expenses or home repairs.

·       Life Insurance.  Life insurance policies can be a source of income for the policy holder.  Though many are unaware, you can borrow against the cash value of a policy and either repay the loan or reduce the death benefits.  Some policies pay “accelerated death benefits” to help pay high medical costs resulting from a terminal illness.  Policies can also be sold for 40 to 80 percent of their face value in exchange for the payout after death – a policy know as a “viatical settlement.”

·       Annuities.  Should be reviewed carefully and may not be appropriate if you are near retirement.  Look for annuities with a guaranteed principle, versus those that might lose their principle value because of poor market performance. 

It is important to remember that each individual’s financial situation is different and may vary based on your health care costs or your sources of income.

Fraud

Seniors are often the target of schemes that result in the loss of significant amounts of money.  The FDIC has these tips for avoiding losing your hard earned money and your retirement security:

·       Frequently check your accounts for any unauthorized use. 
·       Review your credit report frequently for any unauthorized accounts opened in your name.
·       Try to deal only with businesses you know or that have been recommended.  Avoid unsolicited offers from people or businesses.

·       Get the details of any transaction before you sign your name or give any information away, and review them carefully.  Take your time in making a decision.

Get Organized

The FDIC recommends several tips to keep organized and current on your finances to better protect your retirement security:

·       Simplify.  Use automatic deposits for your various income sources such as Social Security check and pension benefits.  Many online banking sites will also allow you to set up automated monthly bill payments.

·       Keep current.  Update your will and other legal documents.  Carefully discuss with your attorney or financial planner the nuances of who has access to your finances and the extent of their control, and who can make medical decisions for you. 

·       Organize and protect important documents.  Make sure you have important financial and legal papers in a safe and accessible place.  In light of recent natural disasters such as Katrina, you may want to take extra care to store these documents in an airtight, waterproof container.  Also consider making copies to keep at a separate location or with someone you trust.

·       Toss out old documents.  But do so carefully!  Shred documents that contain personal information, and consider keeping tax documents for a longer period that you might other receipts. 

·       Keep track of old accounts.  Carefully document which accounts have been closed or cashed out to avoid future confusion about their status.  Make sure all of your financial institutions have your current name and address.

For the FDIC’s complete guide, visit http://www.fdic.gov/consumers/consumer/news/cnfall05/CN_Fall_2005_color.pdf

As always, I encourage you to contact my office in Austin at (512) 916-5921 if I can be of further assistance.