Plan for rising health care costs -- especially if you're healthy now
Most boomers realize that care is pricey, but they typically don't grasp the scale of rising costs.
A private room in a nursing home, which now costs $82,125 a year on average, according to the American Association for Long-Term Care Insurance, could escalate to $190,000 a year by 2030, according to estimates by insurer Sun Life Financial. Yet in a survey of 1,015 people who are 50 or older that Sun Life released earlier this month, the median guess was that costs would go up half that much.
Some 70% of Americans older than age 65 will need long-term care, meaning help with daily activities such as eating and bathing, according to the U.S. Department of Health and Human Services. Yet the same survey found that almost none had discussed long-term care with a financial adviser or lawyer.
Financial planners who confront their older clients with such statistics say the clients usually spring for long-term-care insurance, which costs about $2,350 a year for a 55-year-old couple (including discounts for good health and being married), or $4,660 a year for a 65-year-old couple, according to the American Association for Long-Term Care Insurance.
The main moving parts are the length of the benefit, which generally should last at least three years; the daily benefit amount, which should match up to costs where you live; and the "elimination period," meaning the period of time you choose to pay your expenses yourself before coverage starts. Particularly for people under age 70, many planners also recommend paying up for a rider that provides a 5% bump in the benefit each year to protect against inflation.
Another option is a "hybrid" -- an annuity or life-insurance policy with a long-term-care benefit. Bajalia in St. Augustine recently set up an indexed annuity for Barbara Deckman, a 62-year-old retired teacher, which has a lifetime-income benefit and a "double confinement" rider, meaning the policy pays twice as much each year if Deckman qualifies for long-term-care payments.
Don't jump the gun on Social Security
One of the benefits of advance planning is that it can allow you to delay taking Social Security for as long as possible. Depending on your financial situation, life expectancy and other issues, that could be a wise move.
Unless a person is terminally ill, there is little upside for someone in his or her early 60s to tap Social Security. By collecting at 62, rather than at the government's "full retirement age" of 66 for people born from 1943 to 1954, you would slash your monthly benefit. Wait until age 70, however, and you would get 132% of the monthly benefit you would collect at your full retirement age.
A retiree eligible for $18,750 a year in Social Security at age 62 who waits to collect $33,000 a year starting at age 70 could substantially increase the after-tax amount he could spend by age 95, according to T. Rowe Price. Assuming the benefit would increase 3% a year for inflation, and that the retiree was in the 25% marginal income-tax bracket, he would get $850,000 in all by starting the benefit at age 62 -- or $1.4 million by waiting until age 70.
- Calculator: Are you saving enough for retirement?
Becoming a nonagenarian isn't unthinkable: One in four of today's 65-year-olds will live to 90, and one in 10 to age 95. So, if your family members typically live into their 80s or 90s, and you think you could, too, you should consider delaying the benefit as long as you can.
Of course, the big challenge in postponing Social Security is figuring out how to fill the gap between age 62 and whenever you start collecting benefits. Couples in which both spouses worked could try to live off the early benefit of the worker with the smaller paycheck, saving the larger one for later.
Another strategy, living off retirement-account withdrawals for a few years, might help cut future tax bills. Starting in their 70s, retirees generally have to take mandatory withdrawals from retirement accounts, and pretax contributions and earnings are subject to income tax. By lowering those account balances in their 60s, at the same time they aren't drawing Social Security income, early retirees might be able to take smaller mandatory withdrawals later and also pay tax on those withdrawals at a lower rate.
Bottom line, Reardon says: "If there's a good chance one of you will live into your 80s, delaying Social Security is a good way to guarantee your rate of return for your collective lives."
VIDEO ON MSN MONEY
Please. My husband is a truckdriver for a small sand and gravel company and I am a secretary. When we married 26 years ago, we were 35, and had five children between us and NO MONEY.
Somehow we have raised those kids (Had another together.) owned three differant homes and SAVED MONEY FOR RETIREMENT.
No, we will not be traveling to Europe or even Mexico, but we will be able to live in that retirement trailer park with the pool and rec center.
We have had no new cars, only used, and lived on a tight budget. Vacations have been to stay with relatives and children or camping.
Our name is not Kennedy, or Rockefeller or Gates, so we have planned for the BEST RETIREMENT WITHIN OUR REACH. We will have a few camper vacations and visits with the grandkids.
PLEASE people! You can ALL do the best you can and be happy!
Is it realistic to spend $120K per year after retirement? I guess one can spend few millions a year or a day, but using this example maybe a bit out of line considering the one retired most likely do not have a mortgage (with $2 MM in savings) and the kids are gone. I thing between $50-$60K per year would be more reasonable after retirement (assuming the retired spend their money wisely). With $60K per year and $2 MM in savings, that would last them around 34 years. Further assume that you retired at 60 and the average life span is around 82 or so. The $2 MM in saving will last till you die.
Keeping the money in a cash account may cause you to miss any growth opportunity in the market, but it will save you money or your retirement when the market goes down. Another plus on cash is certainty. You know how much you need and you can actually set goal to achieve them. When you have the money in the market... who knows.
And SS is/will be fine. It needs only minor tweaking as happened int he '80s.
The fear-mongers ( who want to end SS because it helps working people) have convinced the young that it won't be around, but that's only true if they convince too many people to drink the kool-ade.
It's moron wednesday again on here. I'm investing for long term and yes I've lost some recently but I'm looking down the road 5 years and more... after Obama's second term when the republicans have had to work with him and change the economy for all of America not just the top 1%, and the Bush Tax cuts have been abolished making America THRIVE once again!
Republicans get off your lazy butts and gety to work! Where are the jobs Mr. Cantor?
these articles are a waste of time, so many people have spent their lives just making a living, putting food on the table, paying the bills and after this is done whats left to add to a retirement account?
With all the houes the government has in its inventory, it should start giving them away for $10,000 per 1,000 square feet, free and clear, after that the government can start giving away cars from government motors (GM) that we paid for, again for like $1,000......then we get blocks of cheese
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