Financial Literacy 2007 - Retirement
Jennifer Openshaw
Interview: Jennifer Openshaw

q_v2.gifWhat else can consumers do now to potentially save health care costs in retirement?

a_v2.gifHere are some specific tips I discuss in "The Millionaire Zone." First, look for a group plan through a professional organization. There are a wide variety of member associations offering group health insurance to their constituents. If you're not a member of a professional organization, it may be worth it to join for those benefits. Plus, you ramp up your LifeNet with additional contacts that way!

Second, check your spouse's health insurance. Often, a spouse can start his or her own venture thanks to the health insurance the other spouse enjoys through an employer.

Also, don't forget COBRA. Federal laws require most employers to offer their employees access to COBRA for 18 months after leaving the job. The caution here is that COBRA only grants you access to the group policies -- you are still required to pay the full premiums. Those COBRA premiums may be more than what you'd pay on the individual market.

Finally, health savings accounts, or HSAs, are a new tax-friendly vehicle aimed at encouraging people to save for their own health-care costs. You invest pretax money in a health savings account and all the money you take out of that account -- including your untaxed contributions and any gains you earn on those savings -- comes out tax-free as long as you spend the money on health-care costs. You can find out about these through banks or companies offering insurance.

q_v2.gifWhat are the biggest mistakes consumers make while preparing for retirement?

a_v2.gif Many Americans have been trapped into thinking they're wealthy because of all the equity in their homes. Well, chances are you're not even close to being rich because that money won't do you a bit of good if you're living in the house. You're actually what I call an "Accidental Millionaire." My goal is to create "Purposeful Millionaires": People who have the wealth and income they need to support them throughout their retirement years. To do that, though, you need to take a very active role in real estate, stock market investing and/or business ownership. Generally, you'll be more successful if you create a support system rather than feeling as if you have to "go it alone."

My research of over 3,000 Americans found that millionaires followed two key principles to building their wealth. First, they had fears to overcome in their pursuit of financial success but were able to do so by using the familiar people, places and resources around them. Secondly, they built their wealth through multiple paths. They were CEO of their own company while they invested in real estate. Or, they were working for a company while actively investing in the stock market. The key is that they were building wealth through multiple paths and not just plunking their income into a checking or savings account. No, they made their money work hard for them. If everyone else can follow these same simple principles, they'll be happier and in greater control over their financial lives.

q_v2.gifYou've written about parents having trouble prioritizing between saving for their children's college education and their own retirement needs. Why should retirement savings come first?

a_v2.gifSo many parents make the mistake of putting their kids' college costs ahead of their own retirement needs. Who wants to end up having to turn to your kids for financial support when you're 60 or 80? I'll never forget the e-mail I got from a woman who watched her husband grow increasingly ill as she simultaneously watched her best friend across the street barely avoid homelessness because she was widowed with no retirement savings. The poor woman writing me feared for her financial life, quite literally. She told me her husband "hadn't saved" and now she worried she was going to end up like her friend. I don't want to see anyone in that situation.

Also, as parents, we don't teach our kids enough about the importance of financial responsibility at an early age, nor do we encourage them to get work experience that is so vital to being a success right out of college. I'm not saying you can't support your kids, but I am saying there are smarter ways to do it so that you take care of yourself, too. For instance, the grandparents may be the key to college. Grandparents can contribute thousands to a college fund without getting hit with gift taxes using the popular 529 plan. And the money grows tax free. For example, a $2,000 yearly gift over 18 years will grow to $80,000 with an 8 percent annual return. That covers most of the projected cost of four years at a public university. And even if each set of grandparents only kicks in $500 a year, that covers half the cost. They get the joy of giving to their grandkids now -- and you can tuck more away for your retirement. Another option is to strike a deal with your kids: You'll match their contributions for college dollar for dollar, which lowers your costs and allows you to keep more for retirement. And yet another idea is to view your investment in them as just that: an investment. Have them agree to be there during your retirement years should you have the need or agree to pay you back once they reach a certain income level.

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