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Golden Years — With magnificent money management, you can stretch your retirement dollars
By Kate Peterson
Illustrations by Shane McG
 Since Joe Magnificent
had retired from teaching at the high school in Metroville, U.S.A., at age 65,
he and his wife, Connie, felt they just weren't making the most of retirement.
Month to month, should money really feel so tight?
Joe's pension and Social Security amounted to $40,000 a year—which left about
$2,800 a month after taxes. Their monthly expenses were around $2,300, including
housing, property taxes and maintenance. That left just $500 each month for
big items such as holiday gifts, vacations and any other major, unforeseen expenses.
They felt strapped.
Then Joe received a letter saying that when he reached 701/2, IRS rules required
him to begin making annual withdrawals from his $60,000 qualified retirement
account. The Magnificents knew this additional income needed to be used wisely.
Joe's pension, Social Security and their assets—which totaled about $180,000—had
to last the rest of their lives. They also wanted to continue their commitment
to charitable giving and help their grandchildren with college costs.
So how did they scale the seemingly insurmountable financial challenges? With
a super commitment to magnificent money management.
Creating Safeguards
The first thing the Magnificents needed to do was to make sure Connie was protected
financially in the event of Joe's death. The couple's major source of income
was Joe's pension, so if Joe dies first, it's critical Connie's financial well-being
not be affected.
"It's important that the wife receive the pension after the husband dies,"
says Davon Bultemeier, a senior financial consultant with Thrivent Financial
for Lutherans in Fort Wayne, Indiana. If a spouse is not eligible to continue
receiving his or her pension checks, the couple needs a life insurance contract
for that spouse, Bultemeier says.
 The next step in their strategy was reviewing how their assets were allocated.
The Magnificents, now both 70 years old, could expect to live at least another
13 years. "Many people at this age are too conservative with their investments,
and they don't get enough return," explains Don Swanson, a Thrivent Financial
senior financial consultant in Libertyville, Illinois.
"Retirees need to make sure their portfolio is protected against inflation.
I get concerned when I see people with only money market accounts and CDs,"
Swanson says. Among other options, Swanson suggests considering the use of annuities
to generate guaranteed or lifetime income payments.
Income-stretching Strategies
After making the appropriate adjustments in their asset allocations, the Magnificents
turned to ways to boost monthly cash flow.
They had always contributed generously to charities, and even though they felt
their income was stretched in retirement, they agreed that their commitment
to charitable giving was non-negotiable. Still, they needed options for making
that pledge work within their income limitations.
As they reviewed their income and expenses, the Magnificents decided they should
shift their charitable giving emphasis from monthly and annual contributions
to a portion of their estate at the time of death. By designating important
charities in their wills, they could increase their cash flow when they were
living, and still contribute sizable sums to important causes.
"When people still have money in a retirement account, they can leave
that to a charity when they die. The charity will not have to pay taxes on it,"
says Bultemeier, who notes that a taxpaying beneficiary—such as a child or grandchild—would
have to pay taxes on that amount.
Bultemeier also suggests naming charities as secondary beneficiaries on life
insurance contracts. If, for example, only Joe had a life insurance policy,
but Connie died first, the couple could designate a charity or charities as
the beneficiary upon Joe's death.
As they considered other income-stretching options, the Magnificents looked
at their home—the four-bedroom ranch in which they had raised their three children—and
realized it might be time for a change.
It's a decision Swanson would agree with. Empty nesters, he explains, should
consider looking into alternative housing that might be more affordable and
still offer the lifestyle that they want during retirement. A more modest condominium,
for instance, can free up equity and reduce energy costs and upkeep.
For the Future
After addressing insurance, charitable giving and income needs, the Magnificents
wanted to tackle one more financial challenge. Though they knew their monthly
income would not allow them to make large contributions to their five grandchildren's
college costs, they wanted to make some effort in this area.
"Grandparents can definitely consider a 529 plan for each child,"
says Swanson, who notes that these tax-advantaged college investment accounts
can be set up for as little as $10 per month. "I recommend that each family
considering a 529 evaluate the tax benefits of different states' 529 plans,"
Swanson says. Coverdell Education Savings Accounts are another option, he adds.
Swanson often advises grandparents to limit the fees they pay for these accounts
by setting up one account for each family, or one account for all of the grandchildren.
However, it is important to properly allocate the assets in terms of risk to
reflect the children's ages and the time they have before beginning college.
There are a number of different fee structures available with these accounts,
and grandparents who want to establish separate accounts for each grandchild
could choose one without an up-front fee, Swanson says.
With a few steps, the Magnificents dramatically improved their financial situation.
Connie's income was protected in case of Joe's death, and their monthly cash
flow rose considerably by eliminating the mortgage and shifting their charitable
contributions. Among other things, the additional cash allowed them to set up
small college accounts for the grandchildren.
Now that's magnificent.
Kate Peterson is a personal finance writer living in Granger, Indiana. She
last covered Social Security in the Fall 2005 issue of Thrivent magazine.
Did You Know?
Fast facts about the average American empty nester.
The median income for a family headed by 65- to 74-year-olds is $40,319.
-U.S. Census Bureau
Men who reach age 70 have an average of 13.2 years of life ahead of them;
women who reach age 70 live an average of 15.8 more years.
-U.S. Department of Health and Human Services
The median net worth for households headed by 65- to 74-year-olds is $176,300.
-U.S. Federal Reserve
Median value of a primary residence for households headed by 65-74-year-olds
is $129,000 while the median value of home-secured debt for the same group is
$39,000. -U.S. Federal Reserve
Median value of retirement accounts for households headed by 65-74-year-olds
is $60,000.
-U.S. Federal Reserve
Median value of installment loan debt (i.e. car loans) for households headed
by 65-74-year-olds is $7,000.
-U.S. Federal Reserve
Median value of credit card debt for households headed by 65-74-year-olds
is $1,000.
-U.S. Federal Reserve
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