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Will you have enough money when you need it?

Here are five practical steps to make sure your financial future is sound.

THERE WAS A TIME, some decades ago, when Americans could plan and plot the progress of their lives fairly well. This sense of owning the future really began after World War II, as the nation's economy exploded in every direction.

By the mid 1950s, the pattern firmly was etched in stone--and in the minds of every young person. The males went to college, got married, and found their way into burgeoning American corporations.

As time passed, the good life meant raising a family, buying a home in the suburbs, getting the kids through school, and, after 30 or so years of advancement, retirement with a stack of stock certificates and a monthly pension check. After selling the house, it was on to a retirement community in Arizona or Florida.

This was the American dream that made financial planning quite simple. During the early years of marriage, there was a need for a low-cost, but high-payout insurance program to provide sufficient money for raising the family and paying off the mortgage, should the breadwinner die before the children finished college. Most financial advisors of the day recommended term life insurance as a good solution because it gave excellent protection with minimum investment. As the husband grew older and his income continued to climb, the cost of the insurance increased. Everyone enjoyed peace of mind.

As the years passed, the term insurance was kept and other investments were made. A few stocks were bought or inherited. A couple of mutual funds were added. A neighbor in the insurance business sold the husband a $10,000 whole life policy, one that was paid up in 10 years or at a certain age.

Finally, at 65, he walked out of the office for the last time and spent the next 90 days selling the family home and looking over Florida properties. Finally, he and his "bride" (even after 35 years of marriage, this is what he always called her) set out to mine the gold in what they came to view as their golden years.

We all know those who followed this dream, and it came true--not for everyone, of course, but for many it truly was a wonderful life. Today, however, things are quite different. The dream still may be there, but everything else has changed.

Over the years, the cost of living sky-rocketed. Spending outweighed income. Debt became an acceptable way of life. Just about every wife got a job. Some investments were made at various times, but nothing seemed to work out very well. In fact, most of the money was lost. It simply disappeared. Over and over, people were saying, "I should have known better, but I wasn't an expert."

There always was more time to plan for the future, particularly retirement, it was thought, even though the day came closer and closer. Then, it happened. Instead of quitting at age 65, early retirement began appearing everywhere. First it was 62, then 58, and down as low as 52.

Plans not only changed, but life became disrupted. To some, early retirement meant a chance to start a second career, but many have found it impossible to get a job at anything near their former level of income or social status.

As the decade of the 1990s approached, it no longer was just early retirement that lurked in the shadows. It was being laid off from a job at age 42 or 45 that became the pattern as the nation's businesses dismantled middle management. It was then that laid-off employees discovered they were ill-equipped for other types of work.

Even though the kids had gone away to college, they came back home to live with their parents. They returned to the nest because they couldn't afford the apartment, car, and clothes--the singles lifestyle that was so prevalent in the 1980s. Their problem isn't too much different than that of their parents. Chances are that both are overeducated and under-employed. The idea of moving to a smaller home or a condo--or to Florida or Arizona--disappeared.

It isn't surprising that many of the retirement communities which had long waiting lines for so many years now have vacancies. Like everyone else, they're trying to lure folks to their doors with all sorts of incentives. People today are staying closer to home for a variety of reasons. In many localities, declining property values make selling the family home virtually impossible.

Planning for tomorrow

The patterns of life have changed, and the personal financial planning game has changed, too. Although many people will continue to take their chances, there are steps to ensure that your financial future is on solid ground. Here are a few practical suggestions:

Never assume your financial affairs are in order. They aren't. They need constant attention and evaluation because your situation is different today than it was five years ago. Tomorrow's needs may be different from the way you pictured them, too.

The financial decisions made 15 years ago may or may not be appropriate today. Many Americans are surprised to discover, for example, that what they thought was some form of "permanent" life insurance turned out to be term life insurance provided by an employer or purchased personally. "You'll only need the coverage while the kids are growing up," you were told. Now, 15 or 20 years later, you realize that the coverage still is necessary, but the cost keeps going up as one birthday leads to another.

Never assume your financial plans are complete or finished. Times change, as do circumstances. Because you never can see far enough ahead in life, it is important to remain flexible.

Make sure the proper mechanisms are in place so that, at death, your wishes are carried out. Whether it is a will or a "loving trust" arrangement (simply taking care of your estate while you're alive), there are ways to convey to others what you have accumulated. When it comes to money, even the most loving, gentle people can display behavior that is unbecoming and certainly unexpected.

It is a major mistake to assume that what you have isn't worth serious scrutiny. Whatever you have, it is worth careful attention when it comes to the way it is distributed.

Calculate carefully what your financial requirements will be when you retire. Don't make a rough guess. Most people will need more than they imagine. As a result, they must reduce their standard of living unwillingly. Even though it's difficult, think about the worst possible scenario. For instance, would you have enough money if nursing home care were required? Who would pay the bills?

Studies show that most Americans realize that the monthly Social Security check isn't enough to live on. Yet, for millions, that is their only income. Evidently, it is difficult to be realistic about finances.

Think about the consequences of your actions. This sounds very basic. It is, but it is very difficult for most people really to come to terms with the fact that, at some point in life, they are not going to be working and their income will be less than it was in the past. Many Americans in their 50s are refinancing their home mortgages to lower the interest rate, but--and here's the catch--for another 20 or 30 years. They are assuming they can sell the house at retirement, but forget that the balance due on the mortgage is going to be deducted from the check they ultimately receive.

In the same way, many are making the mistake of acting as if inflation is no longer a factor. Even three percent inflation increases costs by 30% in 10 years and twice that in 20. If you retire at age 60, this is quite a jump if you live until 80. It is important to plan for these possible rising costs.

Find a knowledgeable person you can trust when it comes to finances. Without question, the best recommendation is a referral from a friend or associate, but don't just jump in and accept what the "advisor" suggests. Check out the person first. Most people fail to take the time to make sure this is the individual who's best for them. Ask yourself these questions: Do I feel comfortable with the person? Am I being pressured? How many years has he or she been in business? Is the individual willing to spend time with me and answer my questions? Is the person willing to call in a specialist if the situation requires it? There are no guarantees, of course. At the same time, by being alert to the right questions, you can trust your intuition.

People like to think they're just about the same as they've always been, but there's good indication they change as much as the times. In the same way, they really want to believe their financial affairs are in order. Yet, there are so many cases of people who find themselves in circumstances they never expected simply because they assumed too much. Financial success is not so much having a lot of money as it is taking very good care of what you have.

Mr. Fain, president of Fain Financial Services, Providence, R.I., and Mr. Ostrove, president of The Ostrove Group, Inc., White Plains, N.Y., have 60 years of experience as financial consultants between them.
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Author:Fain, Robert; Ostrove, Mitchell W.
Publication:USA Today (Magazine)
Date:May 1, 1993
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