Your Retirement Center

Financial Independence

When you have time and money, you can celebrate independence every day.

For many people, the most important difference retirement makes is that they have a sense of control over how they spend their time. If they can feel equally confident that they have control over their finances, the stage is set for a rewarding retirement. But while taking control of your life may not require prior planning, taking control of your finances does.


If you add up the hours you spend on the job, typically 80,000 over 40 years, or almost 25% of your time, there's little question that retirement can be liberating. You probably won't have much trouble filling up the time, either with the things you've been postponing or with new interests. In early retirement in particular, you may find you're putting more mileage on the car, spending more time with family and friends, and just generally enjoying yourself.

HEALTHY DECISIONS While it's not exclusively a financial decision, good healthcare coverage takes a huge burden off your mind. Check the status of your employee health insurance benefits to see if they'll continue, and for how long. If not, investigate the policies available through other groups you belong to, such as professional associations, unions, or organizations like AARP. Group coverage is almost always cheaper than individual policies, including insurance you may be eligible for from the company that covered you as an employee. Medicare solves some of these problems, but you must be 65 to qualify. Since Medicare provides no family coverage, however, you'll still need a plan for your spouse if he or she isn't old enough to qualify. And be careful. Never drop an insurance policy until you're positive you have a new policy in place.


But if you don't have the income to cover your regular expenses, and enough extra to afford what you enjoy, your new leisure may just mean more time on your hands — or going back to work. Though only a small percentage of retired people are truly needy — about 10% of that population, most of them elderly women — many retired people find themselves short of income, or worry that they're going to run out of money. In most cases, that's because they don't have enough sources of retirement income.

There are some things you can do to help avoid finding yourself short of cash. You may want to consider some or all of the following. But remember, there are no guarantees with investing. You may make money, but you could lose money, too, especially in the short term.

  • Invest to the limit in employer-sponsored retirement plans such as SIMPLEs, 401(k)s, 403(b)s, TSAs, or various government plans if you qualify to participate
  • Set up your own retirement plan if you work for yourself or have a small company
  • Put as much as you can into IRAs
  • Consider other tax-deferred plans such as annuities
  • Reinvest any earnings from taxable investments
A typical goal is to invest 10% to 15% of your gross earnings — that's earnings before taxes are taken out — every year. A percentage of your principal should probably be invested for growth, with the potential to be worth more in the future than it is today. Stock, the mutual funds and variable annuity separate accounts that invest in stock, and real estate are potential growth investments.
At the same time, you may want to invest another percentage of your portfolio in bonds and other fixed-income investments, including fixed annuities, and the rest in cash or cash equivalents, to diversify your holdings. Diversification helps balance the various investment risks, including periodic downturns in the market, that you must be prepared for.


Thinking about retirement often makes people nervous, even those who feel they've done a good job of putting away money for the long term. One of the reasons is having to make decisions about drawing income from different sources.

Once you retire and your employer-provided pension is calculated, the amount is usually fixed. Fewer than 5% of private US pensions come with COLAs, or cost-of-living allowances, that increase the amount of your pension to keep pace with inflation. Government pensions and Social Security, on the other hand, are generally adjusted annually to make up for increased living costs.

The factors that may influence what you do include how old you are, the traditional sources of income you can count on, how risk-tolerant you are, and your family health histories. What's even worse, it may be hard to get concrete advice. For example, you may be asked to choose among a half dozen or more payment options for your pension, each producing a slightly different monthly amount. Anyone you ask will have an opinion about which decision makes the most sense, but there's rarely a right-or-wrong answer. Do you take the largest amount you can? Do you spread it over your spouse's lifetime? Do you take a little less, with the guarantee your beneficiaries will get a lump sum amount if you die within a few years? You'll probably want to get expert advice to help you sort through the possibilities.

Florida has the highest proportion of elderly in its population, followed by Pennsylvania and farm-belt states like the Dakotas and Iowa. But there's a difference. Florida has that distinction because older people are moving in. In the others, younger people are moving out.

Drawing income from other resources, like IRAs, mutual funds, and annuities, will require decisions, too. Sometimes you can change your mind about how you take income, but often your initial decision is irrevocable, or fixed for your lifetime.

The only real solution — other than trusting your financial fate to the equivalent of a game of darts — is learning as much as you can about how the different investments can help meet your retirement goals.

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