Seniors Using Installment Loans to Get Through Retirement

Bad planning is hurting retirees

Start planning for retirement early.

Start planning for retirement early.

A new study showed that older Americans are using installment loans to make ends meet. The retirement age of 65 is not a reality for a large group of citizens. Bad planning is the number one reason retirement plans don’t work. Next is failing to plan for emergency expenses and long-term care. Here are some steps everyone should take to plan for a comfortable retirement.

The pension is number one

The first thing to understand is where your money is going to be coming from after retirement. When you quit your job to head into your golden years, your company most likely will ask you if you want your money in one chunk or in payments over the years.

Robert Doyle, CPA with Spoor, Doyle and Associates, said, “Annuity payments are steady, which is a positive, and they last a lifetime, but you don’t know where you are going to be in 15 years down the road. You may have a catastrophic need, and a $500-a-month annuity payment isn’t going to help you if you have a $20,000 emergency medical bill. If you take a lump sum, you are in the driver’s seat.”

Seek professional help

It’s important to talk to a tax professional when you are on the verge of retirement to understand the rules you need to follow to best utilize your pension money. For example, it’s imperative that your pension plan deposits a lump sum into an IRA or you will end up owing a 20 percent withholding tax. Taking a lump sum also can end any additional health care coverage you may have had with the company.

Check out payment options

If you do choose to let your pension plan pay out in payments, remember that there are many options. Do you have a spouse? You can opt to take smaller payments now so your payments continue after your death and go to your spouse. On the other hand, you can opt to take the higher payments and just have them end when you die.

The caution here is that when payments are transferred to a spouse, they could be severed down 50 percent by your provider. Again, be sure to read the fine print and understand all the details of your payments. You want enough money so you or your spouse can count on payments, rather than have to rely on savings, installment loans or family for expenses.

Social security plans

Social security is up in the air these days. Most industry experts are predicting there won’t be much in terms of payments in years to come. For the sake of explanation, let’s assume it is around. Understanding your Social Security benefits are still a priority. The mistake too many people make is to retire too early.

Your Social Security payment is based on the average of your best 35 years of work. If you end your work years too soon, you are adding zero-income to your average. For example, if you earned $60,000 over your best 35 year analysis, your benefit would be computed at that number. On the other hand, if you cut five years off that and retire early, your Social Security would calculate 30 years of $60,000 and 5 years of zeroes. Those five years would bring your average down to about $51,000 and could limit your benefit substantially.

Retiring in peace

Everyone wants to retire in peace, but that takes some careful planning. If you have a good retirement plan, you can avoid having to rely on friends and family or rely on installment loans to get by. It may take some research and strategizing with professional tax experts and your accountant but when you are able to relax peacefully, you’ll be glad you planned wisely.

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