Publication : Kiplinger's Personal Finance
Date : 12/21/2004

The most important phase of a downsizing plan is the preparation stage. If you yearn to give up your job, or fear your job may leave you, careful planning can ease the transition from dual-income family status to life on one paycheck.

Ask your benefits department to identify any vacation, sick leave and severance pay you have coming.

Take full advantage of your flexible spending account, an often-overlooked resource that amounts to free money, says Kathy Dollard, a financial planner in Boxborough, Mass. "Go to the dentist, get new glasses, load up on prescription meds," she says. You can get reimbursed for the full amount you have committed to contribute during the year, not just what you've put in so far. Any money left unspent is forfeited.

Investigate converting your employer's group life insurance to an individual policy. It won't necessarily be cheaper than what you would find on your own but avoids the medical exam required for new coverage.

Consider continuing your group health insurance under Cobra, the federal law that entitles you to keep coverage for up to 18 months (the law applies only to companies that employ at least 20 people). You'll have to pay the entire premium yourself - plus an administrative fee - but Cobra makes sense if anyone in your family has health problems that would prevent you from getting affordable insurance on the open market. If preexisting conditions aren't a concern, however, you may be able to keep costs down by getting a high-deductible policy twinned with a tax-cutting health savings account. to explore the possibilities, go to www.ehealthinsurance.com.

Be strategic with your retirement accounts. If you are at least 55 when you leave your job, you can tap in to a 401(k) penalty-free. If you roll the money into an IRA, you'll generally face a 10% penalty if you touch the money before age 59 1/2. But there is a way to get at IRA money early without penalty. The penalty is waived if you set up a distribution schedule based on your life expectancy. To qualify, you must make equal withdrawals each year for five years or until you're 59 1/2, whichever is longer. Although most planners cringe at the thought of tapping an IRA early, it might provide the money you need to achieve the one-income life you want.