Riddles of Retirement

Riddles of Retirement

Whether you’re running a company or working for one, you’ve probably got some questions about your money and insurance if you’re approaching retirement age. You’re not alone, we’ve got questions too. So, we did some digging for answers to your top concerns.


How much do I need to save for medical expenses in retirement?

Healthcare is one of the largest expense areas for retirees. The average couple will need to save about $285,000 in 2019 dollars for medical expenses in retirement, and that excludes long-term care.

This makes an additional long-term care coverage policy highly advisable. Average annual premiums for a couple are about $3,050 in 2019 dollars. But when weighed against the costs of long-term care, that’s relatively small.

For example, a home health aid costs about $50,000 a year and the median annual cost of a private room at a nursing home is over $100,000. Adult day care services can cost almost $19,000 a year. These costs can wipe out a household’s retirement savings pretty quickly, given that men will need an average of 2.2 years of assistance and women about 3.7 years. Overall, more than half of people over the age of 65 will need some form of long-term care.

And remember, costs are rising rapidly. For example, from 2003 to 2018, the costs of long-term care increased by 67% and private nursing home rooms by 54%.

(Sources: Fidelity Investments, American Association for Long-Term Care Insurance, Genworth, HHS Administration on Aging, Vanguard Research/Mercer Health and Benefits)


What should I do about health insurance?

For individuals that are retiring prior to the age of 65, there are a few different options for health insurance coverage that stand out. The best situation would likely be a continuation of coverage offered by your former employer, followed by coverage through the Health Insurance Marketplace, or finally through the less preferable option of temporary coverage through COBRA.

It’s important to note that employer health coverage in retirement could cease to exist 10 to 20 years down the road, should the company turn insolvent. Options like these are becoming increasingly rare to begin with, most frequently occurring in the public sector.

At age 65, Medicare eligibility helps offset some of an individual’s medical expenses. Parts A and B of the program cover hospitalizations, doctor visits, and some outpatient services. Parts C and D are private plans that cost extra, and they include things like prescription cost coverage.

(Source: CNN Money, Thom Tracy)


Will Medicare be enough coverage?

Without any additional or supplementary coverage, Medicare likely will not be enough to cover the medical expenses of most individuals. Only about 23% of Medicare beneficiaries rely on it alone. In this case, it would be referred to as “Original Medicare” because it would only involve Parts A and B, with no coverage of prescription drugs and no limit on out-of-pocket costs.

Also, Medicare does not cover long-term care expenses, referred to in this case as “custodial” expenses. For the record, most private insurance plans don’t either.

However, Medicare with Medicaid may be enough coverage for people in some cases. Medicaid can cover nursing home care for eligible lower income individuals and can cover other expenses that Medicare alone cannot.

(Source: MedicareResources.org)


Who should I be talking to about retirement?

There are many different types of people you could reach out to for retirement advice – and that’s a bit of a problem in and of itself. It can be tough to find the appropriate person. For starters, you should know the terms like “retirement specialist” have no meaning. There’s no accreditation process behind the term.

Stick with competency. Look for titles such as CFP (certified financial planner), PFS (personal financial specialist) and CFA (chartered financial analyst). Don’t be afraid to inquire about which organizations provided those designations.

(Source: CNN Money)


How Much Money Do I Need for Retirement?

This question can only be answered by first evaluating an individual’s annual spending. Then, multiply that number by how many years you plan to live retired and be sure to account for an inflation rate of about 2.5%.

Keep in mind that people are generally living longer these days. For example, if you’re upper-middle-class and 65 years old today, then you have about a 43% chance of living to age 95. Also, a person’s regular non-medical spending levels remain about the same in retirement as they do while they’re working, particularly for the first decade of retirement.

Some experts say you should save up to $1.5 million. Others say to save 10 to 12 times your current annual income. The real answer is individualistic.

(Source: AARP)


Lots More to Be Learned

Retiring is hard, and the financial future of a household is an intimidating thing to plan. But one must always be willing to ask questions, because there’s a lot more to be learned on this subject. More knowledge will lead to more security, undoubtedly. So, let’s keep asking.