As we get older, one of the things that sometimes gets lost in the mix is how we’ve handled our money. Did we save enough for our golden years? Will we have a comfortable retirement? Am I too late to make up for a lack of financial planning?
Though many Americans look forward to retirement and the opportunity to break free from working life, it’s also a worrisome prospect, particularly from a financial perspective. So what are the top two concerns facing baby-boomers in 2018?
1. Medical Costs
Health care costs are the top retirement concern for Americans. In a survey of more than 2,000 U.S. adults, 31 percent named medical and pharmaceutical expenses as the most concerning expense in retirement.
Unanticipated medical expenses can derail years of retirement planning. The average 65-year-old couple retiring this year will need about $280,000 to cover healthcare in retirement, according to a new study from Fidelity. With women spending even more due to living longer.
If you think Medicare will cover the costs, think again… Monthly premiums for Medicare Part B (doctor visits, surgeries etc) will also be incurred for medication with Part D. These two things alone make up about 35% of the estimated costs in retirement while the remainder is the cost-sharing in and out of Medicare that you will have for co-payments and deductibles. That includes out-of-pocket expenses for prescriptions. Combine this with nursing home/long-term care costs and dental expenses, you can see it all adds up rather too quickly.
The Solution
If you’re worried about long-term care, buying long-term care insurance in your 50s or 60s can help offset some of the risk you’d otherwise face. It’s estimated that 70% of seniors 65 and over will need some type of long-term care in their lifetime, and applying for insurance early will not only increase your likelihood of getting approved, but snagging a health-based discount on your premium costs.
Another option is The Health Savings Account (HSA). HSAs accompany high-deductible health insurance plans. You get a deduction for contributions, invested money is able to grow and you’re able to withdraw the money, tax free, if used for qualified medical expenses. Some people are using them like an additional retirement account by letting the account grow until much later in life.
2. Social Security
The second most common concern for retirees is Social Security worries – The majority of pre-retirement aged Americans, 51%, say they are worried a “great deal” about the Social Security system.
Why? Recent rumors would have you believe the system is going broke, hence the panic. However, that simply can’t happen, since the program is funded heavily by payroll taxes. This means that as long as we have a workforce, there will be money coming in.
The program is however facing a serious shortfall that could slash benefits by up to 23% as early as 2034. Many seniors are running into financial trouble in retirement because they go in expecting Social Security to cover all or the majority of their bills later to find it won’t do that. Those benefits, in a best-case scenario, will cover about 40% of the typical worker’s pre-retirement income. Most folks, however, need more like 80% of their former earnings to pay their basic expenses, even if their lifestyles are relatively modest.
The Solution
The first option is to save independently during your working years and look at Social Security as a means of supplementing an already solid stream of income.
Luckily older workers get a huge opportunity to catch up on savings. Those aged 50+ can put up to $24,500 a year into a 401(k) and $6,500 a year into an IRA. Assuming your investments generate an average annual 7% return during that time you can max out the former for 10 years and you’ll add $338,000 to your retirement savings.
Alternatively as a second option, you can prepare to work part-time in retirement. This will not only give you an additional income stream, but the peace of mind that comes with knowing that you do have the option to generate cash when you need it. Plus you’ll help eliminate boredom that many retirees face as they leave the workforce.
Final Thoughts
Worrying about medical care expenses and Social Security is inevitable, but as you can see there are ways to tackle your concerns head on by planning ahead and saving appropriately.
If your financial worries in retirement are keeping you up at night, CKS Summit Group are here to help. Our focus is to bring you fresh new ideas for your retirement income. Schedule your complimentary strategy session by clicking here, or simply pick up the phone and call us on 586-286-5820 today.
