PROTECTING and PRESERVING YOUR RETIREMENT

Monica King

Now that life expectancy has increased, a new challenge is added to the “stay at home parent” conundrum; staying home to care for an aging parent. Making the leap to take time off to act as caregiver has personal benefits as it does for the child, parent, or ailing spouse, but can be costly when retirement closes in.

The excitement of opening a new life chapter makes it easy to ignore the future. Paring down to a single income can be daunting. How can individuals make up ground to minimize impact on retirement when it is necessary to take some time off?

1. Don’t give up 401(k) contributions.

Too often people leave work and leave behind or cash out funded 401k plans equating to taking money out of savings. Roll it over into an IRA. Even though you can no longer contribute, hopefully a spouse or significant other has this option. Since this may be the point of future reliance, contribute to the max. Temptation to scale back during transition to a single income can be overwhelming. Review and review again the budget, to find ways to increase contributions.

Employers may offer options to fund a spousal IRA; offering opportunities contribute in the name of a spouse. There may be certain income requirement and marital requirements. As with most contributory plans, automatic deposits assure funding; plus, you’re less likely to miss what was never seen.

2. Savings is not for spending.

It’s said, “The more you make, the more you spend.” Obviously, the reverse is true when income reduces. When preparing to take a work hiatus, devote quality time to budget planning and stick to the plan. Neither savings nor retirement plans are designed to be accessed for remodeling or luxury items. “Sleep on it” before making decisions to tap into resources for non-budgeted items outside of emergencies.

Just as significant thought goes into taking out a loan, put the same thought into tapping into retirement accounts.

3. Is there a vesting schedule?

Circumstances can require careers be put on hold. Before leaving a position, review employment vesting requirements to retain employer’s contribution to retirement plans. If working a few more months means retaining contributions, alternate arrangements may be beneficial. Although arrangements may be costly initially, long term benefits are likely to supersede the outlay.

4. Plan to work longer after the challenge.

Social Security benefits are based on the highest 35 years of earning; times of little or no income may be considered in benefit calculations. Exercise options to work on a part time basis or independently from home. This offers time to try something new diversifying a future resume and offering welcome respite from caregiver responsibilities.

5. This is one time you can make up for lost time.

For whatever reason time was taken off, after returning to work and as soon as allowed by the employer, begin making maximum contributions to retirement plans. Individuals 50 and older can take advantage of catch up provisions with opportunities also available for those turning 50 before the end of 2007. Your employer, accountant, or tax preparer can provide information on latest updates.

6. Parents as dependants

Did you know parents don’t necessarily have to live with you to be claimed as dependents? When aging parents with income not exceeding $3,700, they may be claimed as dependents. At this writing, if health care assistance exceeds 7.5 percent of your adjusted gross income, this can be a tax deduction. Check with your accountant, attorney, or tax preparer for details.

Just as child care qualifies for tax credits, so does elder care for a dependant parent. In this case, the parent must reside with you greater than half the year.

According to The Employee Benefits Research Institute and the Investment Company Institute, workers who steadily save in a plan through their careers through age 65, should be able to replace roughly 83 percent or more of pre-retirement income. The key is wise planning and acting carefully before tapping into resources. Another point to protect your investment, keep account numbers, social security numbers, and other personal information secure.