Steve Zenk, Guest Column

Retirement isn’t what it used to be. In the days of yore, the path to retirement was a fairly straight one. A defined pension plan and Social Security payments, along with a nest egg, meant a retirement spent on the golf course, vacationing during winter months in sunny destinations and cruising through the final years on financial autopilot.

But the times they are a changing. Market volatility, diminishing pension benefits, a shaky social safety net and a chronic lack of savings have forced many to rethink what retirement means. Rather than a straight and narrow path of days gone by, baby boomers and younger generations face a long and winding road to retirement and beyond. A road map and guide have never been more important, not just to make it into retirement safely, but to be able to navigate the retirement years when longer life spans will strain the finances of most new retirees.

Getting ready for this changing world means asking some fundamental questions, not least of which is how much money is really needed for retirement. Others include where do I want to live in retirement and how much does it cost to live there? What do I want to do with my time? What habits and enjoyments can I give up in retirement and which are non-negotiable?

Keys to success

The answers to these questions will set the stage for a realistic estimate of financial needs. But the next step is to work with a financial professional to develop a long-term strategy that incorporates the following keys to a successful retirement:

• The emergency kit. Potential medical bills, repairs and other expenses should be factored into a retirement plan. Proper insurance coverage can help protect against an unexpected loss.

Lump it or leave it. When a worker retires from a job that provided some type of retirement plan or pension plan such as a 401(k), he or she may be faced with a choice concerning what to do with that money, including: leave the money in the retirement plan and take distributions in the form of a payout option, take the lump sum and move the money to an IRA, or convert some or all of the money into a Roth IRA. Workers who were covered by a defined benefit retirement plan may also be confronted with the choice between a lump sum distribution which can be rolled over and electing one of many payout options.

• The maximum monthly income for life. No benefits (which might include medical benefits) would be paid to the surviving spouse should the plan participant predecease his/her spouse.

A (reduced) joint and survivor monthly income for life. The pension would cover the plan participant and his/her spouse and guarantee both of them a monthly pension for life.

A lump-sum distribution from the plan at retirement. The plan participant now has the responsibility to invest and manage that lump-sum distribution to provide for the couple’s retirement income needs.

In the situation above many retirees, for a variety of reasons, will elect to take what is commonly known as a (reduced) joint and survivor payout. Once the plan participant makes a payout election it cannot be changed. Determining which payout election is best for you (even if you are single) can be a complicated endeavor. For that reason, you should consult a financial professional to help determine your best choice.

• Invest, don’t guess. For younger generations, pensions or Social Security can’t be counted on. By investing early, the potential growth of these investments may offset the effects of inflation.

• Kill the debt. Credit cards and car loans should have payoff priority because of their generally higher interest rates and lack of interest deductibility. Make it a habit to pay them down first if possible.

• The power of work. Some new retirees won’t have a choice, but consider taking a part-time job during retirement. By working a few hours a week doing something fun, retirees may reduce stress, have a great social outlet and feel better equipped to make ends meet. Knowing how this income affects Social Security payments, however, is important.

• Simplify. A lifestyle that is easy to manage and not excessive is rewarding in its own right. Weed out unnecessary expenses and take control of money issues.

No matter how winding the road may be to get into retirement and beyond, the key to success is planning. Understanding personal values, goals and saving and spending tendencies is a first step to making straight the retirement path. Proactive preparation can help you work toward ensuring that your retirement is the stress-free period of life you expect and deserve.

Steve Zenk is a financial consultant with Thrivent Financial for Lutherans in Albert Lea. He can be reached at 377-2826. Thrivent Financial for Lutherans is a Fortune 500 financial services membership organization helping nearly 3 million members achieve their financial goals and give back to their communities.