1. Do you want to take your DROP Pension in a lump-sum and roll it over to a self-directed IRA or do you want to leave it in the program, earning a fixed rate of interest and receive income payments similar to your Ohio Police & Fire (OP & F) Pension Fund?

Participants in the DROP Program have the choice of leaving their retirement assets in the DROP Plan, or taking a lump sum distribution from the plan and rolling it into an IRA. After you have been in the plan for three years, the option of taking a lump-sum payment is available to you. Leaving your funds in the DROP Program will allow you to continue to receive a fixed rate of interest and the ability to receive fixed payments, similar to your Ohio Police & Fire Pension payments.

However, by taking your lump sum and moving it into a self-directed IRA, you increase the options available to you and your future. You can still receive a fixed rate of return and receive fixed payments as if you never left the DROP Program, through CD’s, fixed or immediate annuities. But you also unlimited in your investments choices by taking control of these assets for increased flexibility to adjust your investments as your situation changes. It is extremely difficult to predict the future. That is why the flexibility of a self-directed IRA is often the best choice to coordinate with your Ohio Police & Firefighter’s Pension.

2. How much income will you need in retirement? Will your OP&F Pension and the DROP be enough? Are you planning on continuing to work in another industry or in the private sector?

A key element in retirement decisions is an evaluation of the income you will need in retirement. It is important to have an idea of the income you will need to maintain your current lifestyle. The best place to start that process is an examination of your current living expenses, and then adjust those numbers based on how you think life will be different in retirement. Next, you should look at what sources you will have to generate your necessary income. When you retire, are you really going to retire, or will you pursue other employment options? All of this affects proper retirement planning.

Now comes the hard part. How much income will you need 10, 20, or 30 years down the road? Will the plan you put in place provide the income you will really need? You are going to want to make sure that you have reasonable growth with your retirement assets, and that you have the ability to adjust your income as time goes on. A key component to proper retirement planning is staying ahead of inflation. With current inflation running in the 3% to 4% range, without proper planning your standard of living could decrease 30-40% in ten years!

3. Did you participate in the Deferred Compensation Plan (457 Plan); and if so, will you be rolling this to a self-directed IRA, or do you want to keep it in the current plan after you retire?

If you are a participant in the Ohio Deferred Compensation Plan, you will need to consider similar options with those assets as well. You will have the opportunity to transfer the balance in the deferred compensation plan into an IRA. Rather than being restricted to the options available in your plan by moving your funds into a self-directed IRA, you are now in the driver’s seat. You can select any investment vehicle in the entire industry, such as stocks, bonds, mutual funds, cds, annuities, etc.

By being in control of your assets, you can decide whether you want to take the necessary time to manage those assets; or you can seek the advice of professionals that can help you plan for the future. The key is that you are the one that makes those decisions, and have the ability to make changes as your life changes.

All of this can seem daunting, but with the help of trained professionals the decision process can be made much easier. When we have safety concerns, we know that we have our police and fire departments to turn to. When our clients have financial concerns, they turn to us. That’s what professionals are for. Should you have any questions on your DROP OP & F pension or your deferred compensation, please contact my office for a free consultation. Don’t forget to tune into my radio show Saturdays on WHK 1420 from 11 a.m. to 12 p.m. or the Golden Opportunities Show Sundays from 11:30 a.m. to 12 p.m.

Securities offered through Sigma Financial Corporation, Member NASD/SIPC

4. If you decide to roll your money into a self directed IRA, will you be managing the money yourself? If not, do you know how to look for a financial planner? What are the questions you should ask before letting someone manage your retirement?

In some ways it is easier to manage your own retirement assets today than it was in the past, and in many ways it is more difficult. Having a wealth of information at our fingertips is a double-edged sword. With modern technology, up-to-date information is just a mouse click away. But with modern technology in many cases we have too much information from sources that we aren’t familiar with. So the good news is there is lots of information if you want to go it alone, and the bad news is there is lots of information if you want to go it alone.

If you want to manage your own retirement assets, you can educate yourself, and then stay continually informed on the market in general and your holdings in particular. For lots of people in retirement, this almost becomes a second career, and one they truly enjoy. If that sounds like you, go slow, because as with anything else, mistakes can be very costly.   The last thing you want to do is have to go back to work. 

If that doesn’t sound like how you want to spend your retirement, you would be wise to enlist the aid of a professional. You should try and find someone that shares the same philosophy with you, and someone you can trust to share your information with. The more information you share with your retirement planner, the better the plan that will be put in place. It is best to find someone who specializes in the area where you are seeking advice--retirement planning.

You first want to get to a certain level of comfort with a professional’s background and abilities. To get to that point, you should inquire about the firm and the individual’s history, education, professional designations and areas of experience. You should know who you will be working with on an ongoing basis, the person initially meeting with you or a junior, and quite possibly, less experienced associate. And before you go much beyond the informal discussion phase, you should know about levels of compensation and how fees are charged.  Get some references of people they have done business with and check with local agencies (i.e., Better Business Bureau, the local Chamber of Commerce) to see if any complaints have been filed.

5. Is your estate in proper order, such as your wills, durable power of attorney for financial purposes, general power of attorney for health care, living will, etc.? Do you need a trust?

Now is a good time in life to make certain all of your affairs are in order. If you review your retirement from a financial standpoint, but fail to consider it from an estate planning perspective, you could be putting a plan in place that could fail to meet your objectives. Again, you can educate yourself to make sure the proper documents needed to meet your objectives are in order. Or you can work with a qualified professional who can use their education and experience to explain the pros and cons of different approaches so you can make informed decisions.

6. Do you understand how to coordinate your health insurance with your spouse’s after your retire? Do you fully understand the new prescription drug plans the government is putting in place and which one is right for you?

Health care coverage is an absolute necessity. Not having adequate coverage in place creates the potential to destroy any retirement plan. But having duplicate benefits is a waste of precious resources, especially with today’s high cost of health care coverage.  Make sure you explore health care savings accounts (HSAs) to possibly tax deduct your medical expenses.  If you r spouse is eligible for medical benefits, explore the options to see whose retirement health care benefits are better suited for your doctors, hospitals, and any ailments.  If you are retiring before age 65, make sure you have extra resources for escalating health care costs that will far outpace inflation.   This must be incorporated into your financial plan to bridge the gap until you qualify for Medicare.

This article is the fourth and final article in a series of articles about some of the important items needed to make sure you are adequately covered as you put your retirement plan in place. The first article in this series included a checklist of eight items to cover. In this final article of this series, we are going to cover the last two items on the checklist, tax planning and contingency plans.

7. Do you have a good tax plan in place? Remember, we live in a marginal tax bracket society so the more income you bring in during retirement, the more taxes you may have to pay! Are you taking advantage of any tax credits or will you be eligible for any during retirement that may be able to increase your retirement income?

For a retirement plan to be successful, it must take into account the impact taxes have on the plan. No matter how successful the investment plan in place may be, without proper tax planning the investment’s returns could be derailed. Navigating the complexity of the rules and regulations surrounding our tax laws can be very complicated. And if not done with proper foresight, the tax implications could be very surprising.

Hopefully all of our readers will be spending a very long time in retirement. And the longer you plan on spending in retirement, the more you should be concerned about the retirement plan you have in place. A primary concern should be that your retirement assets are increasing in purchasing power every year. If not, the things you need down the road will become less and less affordable. To increase the purchasing power of your assets, you need to consider the after-tax real rate of return you are earning.

Briefly stated, you real after-tax rate of return is what your assets have earned, less the taxes you have to pay on those earnings, and then reduce that rate by the rate of inflation. Only by taking both taxes and inflation into account, will you know your net results. And it is the net results that will pay for the goods and services that you will need next year.

This is an area that many people, especially those that are putting a plan in place by themselves, fail to adequately take into account. The long term impact on not having a proper tax plan in place can ruin an otherwise sound financial future.

Along the same lines, you should be careful to create only the taxable income that you need for your current living expenses. It is not a good tax plan to create taxable income, pay the taxes on that income, and then turn around and reinvest the after-tax income you did not need for today’s expenses. By doing so, you have moved back a step, and let taxes become more of a partner in your plan than is necessary.  Most people fill up their lower tax brackets with wages and earnings, and their investment income comes in at their highest tax brackets. This can further shrink your after-tax net income. See the table below showing the marginal tax rates for a married couple filing jointly.

Income	Marginal Tax Bracket
$0-$15,100	10%
$15,100-$61,300	15%
$61,300-$123,700	25%
$123,700-$188,450	28%
$188,450-$336,550	33%
Over $336,550	35%

Through certain investments in real estate, you can create tax credits that have the effect of reducing your tax liability on a dollar for dollar basis. These investments can be very complicated and do entail certain risks, but in the right circumstances they can pay the taxes due on your IRA withdrawals therefore in effect getting money out of your IRAs tax-free.

8. What contingency plans do you have in place to take care of yourself and your family should the unexpected occur? Do you have long term care insurance to make sure your assets are not depleted in case of a nursing home stay or if home health care is required?

People are living longer today, and that increases the likelihood that you or your spouse will spend time in a nursing home. Health care costs are rising, and rising at a faster pace than the rate of inflation. These increased costs could lead to a financial disaster for you, your spouse or your family in that your retirement savings could be wiped out by long term care costs. In the Cleveland area, the average annual cost of long term care, or a year in a nursing home, is over $60,000. Are you prepared for this type of financial disaster? You may not want to purchase long term care insurance, but you must consider these implications in your retirement plan.

A good place to start in the consideration of long tern care insurance is with your own family. How do your family members feel about the need for this coverage? Does your family have a history of health related issues? Do you or your spouse have any current health issues that would indicate the need for some type of assistance down the road? Take a look at different scenarios. Probably the worst case scenario is for one spouse to stay at home and the other to need long term care, necessitating the need to maintain two households. It’s OK to consider self insuring this type of risk, but you need to weigh the risks and the costs involved.

A better approach to protecting your family from the costs associated with long term care is to pass the costs off to someone with bigger pockets like an insurance company. The hang up most people have with traditional LTC insurance is that if you don’t use it you lose it. Therefore, we have recommended that many of our clients tie their long term care insurance with life insurance. With this alternative, if the benefits are needed, the plan is in place. If the benefits aren’t needed, the policy’s death benefits go tax free to the family. This way, all of the premiums for the insurance are recaptured by you or your family with no money being thrown away.

The younger and healthier you are, the more affordable this type of protection is. If you wait until a health problem develops the coverage may be too expensive or completely unavailable.

Articles in This Series

If you would like copies of the previous articles in this series on planning for retirement please contact our office at the telephone number below. If you would like to schedule a complimentary financial review we would appreciate the opportunity to meet. Feel free to give us a call.

Lineweaver Financial Group, Inc. 9050 Sweet Valley Drive, Valley View, Ohio, 44125.

1-888-313-4009. Securities offered through Sigma Financial Corporation.  Member NASD/SIPC.

If you have any questions regarding your retirement benefits, or if you are unsure what to do, just give our office a call at 216-520-1711, and we would be happy to meet with you.