Just in time for Halloween, CKS Summit Group presents a list of four frightening retirement readiness facts that will make your hair stand on end!
Halloween might get less scary as we age, but there are a lot of frightening aspects of retirement in 2019. In fact, recent data on the state of America’s workforce shows just how unprepared for retirement many Americans are. Here are some spooky retirement facts to inspire a bit more terror – and some added tips to help ease the bite.
1. Spooky Social Security
More than one-third of retirees rely on Social Security nearly exclusively for income. As reported by the Social Security Administration, for 23% of married retirees and 46% of unmarried retirees who receive Social Security benefits, it constitutes 90% or more of their income.
What’s more, the Social Security Administration announced just weeks ago that the cost-of-living adjustment for 2020 will be 1.6%. That number is less than what retirees have received in recent years. In 2019, they got a 2.8% bump, while in 2018 the increase was 2%. Therefore Medicare Part B premiums could increase by that much. As a result, most retirees now pay the standard premium for Medicare Part B is $135.50/month for 2019, but it’s projected to increase to $144.30/month in 2020.
Pro Tip: The Social Security cost of living adjustment (COLA) is expected to be about 1.6 percent for 2020, which will increase the average retiree’s total benefit by about $23/month. That’s more than enough to cover the roughly $9 increase in premiums for Part B, which means that the premium increase is likely to apply to nearly all Part B enrollees.
2. Tax Vampires
Like a blood-sucking beast, taxes can drain substantial dollars from retirement income, leaving a retiree’s after-tax budget a shriveled husk. If you don’t take your Required Minimum Distributions (RMDs) from retirement accounts such as traditional IRAs and 401(k)s that require them, you can face an excise tax of 50% of the amount you failed to withdraw. The deadline to take your distribution each year is Dec. 30, except for the year in which you turn 70 1/2, when you get a little more leeway.
Pro Tip: Consider directing some assets into tax-free vehicles such as Roth IRAs, health savings accounts, cash-value life insurance and some annuities in non-qualified accounts to boost future spendable income in retirement and generate income that won’t impact Medicare.
3. Horrifying Healthcare
Various industry research has concluded that 69% of baby boomers and 66% of retirees estimate their health-care costs in retirement to be “$100,000 or less.” However, those estimates are below Employee Benefit Research Institute projections that the average 65-year-old man would need $127,000 in savings, and a 65-year-old woman would need $143,000, to give each of them a 90% chance of having enough savings to cover health-care expenses in retirement.
Pro tip: Even with Medicare coverage, seniors still incur substantial out-of-pocket costs. EBRI projects that a couple who are Medicare beneficiaries and want to be confidently prepared for the higher end of prescription drug costs would need to have $368,000 in savings to cover premiums, deductibles, and other out-of-pocket expenses. To help fill a gap in saving for healthcare expenses, consider increasing contributions to your tax-advantaged accounts, especially HSAs (if you have one), which enable tax-free spending on health care in retirement.
4. The (Adams) Family
Many retirees are disillusioned when they find they still have significant family responsibilities in retirement. The Administration on Aging reports nearly half a million grandparents aged 65 or more have the primary responsibility for their grandchildren who lived with them. The Administration on Aging also reports that crowded housing conditions are challenging for retirees who have their adult children or grandchildren living in the home.
Pro tip: It’s time for a reality check. Diverting retirement savings to helping others is laudatory, but it has consequences. It’s time to cut off paying others’ bills like cell phones, student loans, car payments etc. Retirement is meant to be enjoyed so start accepting help from others! Hopefully your family will welcome you with open arms when you have to move in with them into their house on 0001 Cemetery Lane in retirement.
One big traumatizing takeaway is that many Americans are saving far too little for their retirement. And while Halloween comes and goes, retirement planning is an ongoing priority. It’s time to get rid of the fear. It’s up to you to take charge of your finances and make better decisions going forward. Otherwise, your retirement years will be a troubling, frightening experience.