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The Golden Years are all about enjoying your retirement - and that means not having to worry about your finances.

Consider these tips and resources to help you make the best choices with your money

8 Tips to Help Seniors Battle Debt
New Rules Simplify IRA Calculations And Planning

8 Tips To Help Seniors Battle Debt

Silver-haired debt is ruining a lot of retirements these days. And while staying out or getting out of debt is often more difficult for seniors than for younger age groups, it can be done with some careful planning.

According to SRI Consulting Business Intelligence in Princeton, New Jersey, today's seniors are relying on credit cards, running up record debt and filing for bankruptcy much more than they did a decade ago. None of this is surprising. The bear market and low interest rates for fixed income investments have crippled the investment portfolios many seniors draw on for living expenses. Adding to their woes are skyrocketing medical expenses, coming at the same time employer retiree health benefits have been reduced or eliminated. And debt problems are tougher to avoid or solve for seniors because they typically don't have employment income to bail them out.

If you're retired (or soon will be), here are eight tips for helping you battle potentially devastating debt.

Overcome your pride

Many seniors are too proud or embarrassed to admit they have debt problems or to ask for help in getting out of them. At the very least, talk to someone close to you who understands personal finances. Better yet, consult with a competent financial planner, or perhaps see a credit counselor if you're in serious debt.

Quit giving money to your children and grandchildren

Sure, you love them, but they'll understand if you can't afford to loan them money or pay their way through college. Otherwise, you could end up being a financial burden on them.


Workers commonly believe they'll spend 20 to 30 percent less in retirement than they did while on the job. But many retirees find they spend as much or more, especially during their early years of retirement. On top of that, they may incur heavy medical expenses or may not have sufficient retirement income (four in ten rely primarily on Social Security). A budget can help you align your expenses with your income, and if you're already in debt, help you free up extra dollars to pay down that debt.

Easy on the credit cards

Seniors are piling up debt on their credit cards, often to pay for prescriptions and other medical expenses they can't otherwise afford. At the least, ask your credit card company for a lower interest rate, or transfer the balance to a cheaper credit card. Better yet, stop using the card, and if you must borrow, try to find less expensive ways to borrow, such as against the equity in your home.

Tap the equity in your home

Seniors typically have significant equity built up in their home, and they can tap it with a home equity loan or a home equity line of credit (but watch out for predatory lenders charging high rates). The interest rates on a $10,000 fixed rate home equity loan was around 6.7 percent in late July, according to, and around 3.9 percent for a $10,000 equity line of credit well below the 14 percent the average credit card was running. In addition, you may be able to take a tax deduction for the interest you pay on the equity loans.

Go in reverse

The downside of home equity loans is that you risk losing your house if you can't pay back the loan. You can avoid this risk by borrowing against the equity with a reverse mortgage, taken out in a lump sum, as a line of credit or in monthly payments. The advantage is that you don't have to repay what you borrow (plus interest and fees) until you sell the house, move or the surviving spouse dies. The caution here, say financial planners, is that reverse mortgages are complex, fees and interest rates can be steep, and you probably shouldn't use this method unless you plan to remain in the house for a long time.

Ask for a property tax reduction

Low income seniors, and in some places anyone 65 or older, may qualify for a property tax reduction.


Returning to work or not leaving work if you're on the cusp of retirement may not be a desirable option, but even a part time job can help alleviate debt. And many retirees are finding that a little work in retirement is psychologically as well as financially beneficial.

This article was submitted by the Financial Planning Association, the membership organization for the financial planning community. FPA members are dedicated to supporting the financial planning process in order to help people achieve their goals and dreams.  Submission of this article does not imply an endorsement or recommendation of the Financial Resource Center site.

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New Rules Simplify IRA Calculations And Planning

Owners of Individual Retirement Accounts (IRAs) and other qualified retirement plans have reason to rejoice. According to the Michigan Association of Certified Public Accountants, the Treasury Department has streamlining the formula used to determine the required minimum annual distribution from a tax-deferred retirement fund upon reaching 70½ years of age. Previous rules, which required plan owners to choose a beneficiary and offered limited choices for determining life expectancy, were extremely complicated and, for the most part, irrevocable. In fact, the wrong decision could mean outliving your retirement funds.

The new rules provide a simple and uniform method of calculating life expectancy that, in effect, lengthens for tax and distribution purposes the plan owner's life expectancy. As a result of the change in calculating minimum withdrawals, retirees can take smaller annual distributions. A lower annual withdrawal means a lower tax bill and more money left in the plan to accumulate tax-deferred earnings.

While the new rules officially become effective in 2002, qualified individuals, by using the new calculation method, can take out less money from their IRAs in 2001. Bear in mind that these rules only set the minimum amount you must withdraw annually; you can always take more if your circumstances require you to do so - and you're prepared to pay the tax bill. December 31 of each year remains the mandatory deadline for annual distributions.

Calculating The Annual Required Withdrawal - Now, with one exception, the amount of your annual minimum withdrawal is based on your IRA account balance at the end of the previous year and the joint life expectancy for you and your beneficiary (even if you haven't named one) as shown in the IRS Uniform Life Expectancy Table. This table assumes you have a beneficiary who is 10 years younger than you.

The table provides a life expectancy divisor corresponding to your age. A 73 year-old retiree, for example, would add up the amounts in all his or her retirement accounts and divide the total by 23.5 percent, the divisor for age 73, to determine the minimum withdrawal requirement for the year. A $400,000 IRA would require a minimum distribution of $17,021 ($400,000 divided by 23.5 percent).

The lone exception to the new calculation rules applies to IRA owners whose sole beneficiary is a spouse who is younger by more than 10 years. In such cases, the IRA owner retains the option of calculating the minimum required distribution using the joint life expectancy figures based on the actual ages of the plan owner and his or her spouse. This will result in an even lower required withdrawal than would the new method.

Changes Affect Beneficiaries Too - Prospective retirees no longer have to lock in a beneficiary at an early date. You can name - and change - beneficiaries as often as you like throughout your lifetime. In fact, you are no longer required to name a beneficiary. And because the beneficiary's age no longer affects the size of the minimum annual distribution, plan owners have more flexibility in naming beneficiaries.

Retirement plan owners are not the only ones to benefit from the new rules. A beneficiary who inherits an IRA also will benefit by being allowed to spread remaining distributions over his or her own lifetime. Previously, children who inherited an IRA from their parents were required to withdraw the money within five years, or in some cases, all at once, resulting in a substantial tax bill.

Although not required, it is generally a good idea to name a beneficiary . Without a beneficiary, your IRA becomes part of your estate when you die.

The IRS Benefits As Well - CPAs caution IRA holders that the proposed rules include a new tax- reporting system requiring IRA custodians and trustees to send year-end account balance and minimum required distribution information to the IRS. This makes it easier for the IRS to track down taxpayers who are not taking at least the minimum required distribution. As was previously the case, if you fail to make a withdrawal or take out less than the required distribution, the IRS tacks a 50 percent excise tax on the shortfall.

You seek the expertise of CPAs at tax and audit time, of course. But CPAs also promote personal and professional financial security year round. Visit the CPA Referral Service on the, MACPA Web site , to search for a CPA in your geographical area or specific area of expertise.

This article was submitted by the Michigan Association of CPAs ( ).

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