At this point in our lives we know that Budgeting 101 requires distinguishing between a “need “and a “want.”  That concept becomes even more important as you plan for retirement and a fixed income. 

After all the media portrays a retirement filled with luxury yet the question for many near and current retirees is how to make sure the fixed income you have will cover the needs for a lifetime.  The recession has brought that home for many of us, yet still there’s a yearning for that dream retirement. 

A new research report says baby boomers who are not yet retired are willing to forgo some luxuries now to have a more comfortable lifestyle in the future. 

So, what do they consider basic needs? It sure goes beyond food, clothing and shelter. 

Among the must haves: healthcare coverage, Internet connection, shopping for birthdays and special occasions and pet care.  About half of those surveyed said they also consider an annual family vacation or weekend getaways, having eldercare/home aid, professional hair cut/color and funding children/ grandchildren’s education to be basic needs as well. 

Basic needs?  Here’s what might be happening. 

“An interesting pattern that we noticed throughout the research was that as consumers age, things that were once considered luxuries are more likely to be considered basic needs–thereby reaffirming that Boomers essentially want it all,” said Matthew Leung from MainStay Investments which sponsored the research.  ”In fact, almost half of consumers (47 percent) say they would downsize their home in retirement in order to afford these luxuries.” 

One thing these boomers got right is that health care is a need not a want. 

Virtually all Baby Boomers (98 percent) said healthcare coverage is not a luxury, but a very basic need—and a need that they are extremely concerned about being able to afford.  Almost three- quarters of respondents (74 percent) rated healthcare costs as either their greatest concern or their second greatest concern. 

“While a majority of consumers are setting aside funds specifically for future healthcare costs, a whopping 41 percent are not doing anything specific to save for healthcare, and will be relying on their retirement assets to cover healthcare and everything else,” said Leung. “Given their lack of allocating pre-retirement income toward these looming costs, we find Boomers’ actions do not always reflect their greatest concerns.” 

We find that many people are surprised by the cost of Medicare insurance when they reach 65 and the cost of long-term care. 

So as you are planning for retirement – or in retirement reassessing your budget – take a close look at what is really “need” and ‘want.”  Budget for the needs; be realistic about the “wants”.   Maybe on thing the recession is teaching us is that “need” list is really over-packed. 

Share what’s shifting in your “wants” and “needs” as you prepare for or live in retirement.

The first rule in looking at a Medicare Supplement plan:  you must shop around.

That’s because the rates can vary substantially from insurance company to insurance company.  But, the plan benefits are identical because they are standardized by the government.

So in a nut shell – the insurance companies must offer the same plan benefits, but can set their own rates.  So that makes it really easy to shop and compare! 

And while there is more to a Medicare Supplement plan than the rate – you want to know the company is stable, has a good track record on paying claims and good customer service if you need it– the monthly premium is a good way to begin to separate the choices. 

Medicare supplement plans cover the “gaps” in Medicare – so when Medicare pays 80% of your bill, rather than pay the remaining 20% out of your own pocket, a Medicare supplement (Medigap) plan picks up that 20%.  It pays when Medicare pays.  So if Medicare doesn’t cover it, your Medicare supplement plan doesn’t either. 

Generally you can select your own doctors and don’t have co-pays.  Two new plans introduced in June – Plan M and Plan N – vary from the standard Medigap plan and may require co-pays, deductibles or a network – so check  your total costs carefully if you look at either of these two plans.  

So if you think a Medicare Supplement plan might be right for you, here are four tips when shopping for a Medicare supplement plan:

• Check prices from at least 3 different companies.  The plans are lettered (Plan A, Plan F, etc.) so it is easy to compare a plan F to another Plan F. It can save you hundreds of dollars a year in premiums.
• If you are moving, don’t assume that the company you have is the best rate in your new location.  Some carriers have preference for some states over others.  And there might be some regional carriers you didn’t have a choice of in your old location.
• If you are healthy and willing to share some of the health care cost risk (pay copays and deductibles), the new Plan N is a plan to look at.
• Medigap plans don’t cover your prescription drug costs.  You’ll need a Part D Prescription drug plan for that.  And that can be a different insurance company, so shop and compare that plan too.(more on Part D later)

 Resources: 

Medicare.gov 

Longevity Alliance – more than 20 different insurance companies – MedSup, Medicare Advantage and Medicare Part D plans. 1-800-713-6250

 Related MomentumToday article:

Deductibles and Copays

Remember the question from the Beatles song…will you still love me when I’m 64?

Well what about 74?  What does life look like in the 70s?  

A New York Times article paints a picture of the diverse lifestyles of those their 70s.  And two of the defining factors that become more prominent in how you live are financial security and good health. 

We’ve highlighted the chart in this article but recommend reading the article if you’re interested in how society’s attitudesof aging are changing.  and some good food for thought about your life in the 70s.

Whether you look at the positives or the negatives of living longer , it’s clear that good financial planning and healthy living can give you more options in later life.

What do you think about your life in the 70s?

More than half of baby boomers fear running out of money more than death. Yet, nearly one-third say they are not too clear about what their expenses will be in retirement and 36% don’t know how long their income will last. 

Pretty sobering findings from a new survey from Allianz Life:  But not too surprising given the shift from pensions to retirement self-funding that has taken place over the past 20-30 years. And increased life expectancy that might mean that money has to stretch over 30 years or more!  Earlier generations worked, saved some and simply counted on a pension check from their employer and Social Security from the government.  

But an increasing number of us are on our own in creating that regular stream of income.  Problem is we’ve been so busy thinking about growing the pot of money, we haven’t spent time thinking about what happens to it in retirement. 

The survey found that a majority of respondents feel their retirement lifestyle must surpass their parents (79 percent), indicating a need to focus on income in retirement versus accumulation of assets. When asked how much yearly income is needed in retirement, respondents indicated a median income of $59,000 per year. Unfortunately, Boomers were off by a factor of nearly three times too small. 

So if you’re one of those fearful baby boomers, the place to begin is by doing the math: figure out –realistically – how much money you need in retirement.  Okay — it’s going to be a guess.  But a guess is better than no information.  And at least it gives you some perspective rather than just fear.    Once you do that you can begin to plan and decide whether you need to keep working and save more, cut back on your lifestyle and expenses or finding you are on the right path keep doing what you are doing! 

When you are doing your estimate, make sure you include the cost of health insurance (Medicare, prescription drugs, Medicare supplement or Medicare Advantage) and long-term care costs.  If you are expecting to receive retiree health benefits through your employer, find out  the expected premium and whether there is any talk about shifting some of that cost to future retirees. 

There is a lot of talk these days about the role that annuities can play in creating lifetime income, including whether they should be an option in more employer 401(k) plans. 

But in the meantime, you can begin to conquer your fear of outliving your money by doing the numbers.   

Here are some resources that can help you figure out how much you need in retirement: 

The Social Security Estimator–

Medicare Costs

Cost of healthcare in retirement (general estimates)

 Medicare insurance quotes:

Longevity Alliance

 Long-term care insurance

In the coming months, you’ll be hearing more about annuities as a solution to outliving your savings, especially immediate annuities.

The White House said last week it plans to promote “the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their retirees’ living standards will be eroded by investment losses or inflation.”

Income for Life

For retirees and near retirees, the annuity type that is getting a lot of attention right now is the immediate fixed annuity ,also called life annuity or single premium immediate annuity (SPIA).

The concept of an immediate annuity is simple: you give an insurance company a lump sum of money; it gives you a contract guaranteeing how and when you receive payments that include interest on your money.  The amount of money you receive depends on the contract terms including your age, gender, ownership and payment terms. 

It is this contracted guarantee that makes an immediate annuity an attractive way to manage risk of outliving your money.

 A study from Americans for a Secure Retirement conducted by Ernst & Young, LLP, warns that “…many American will be forced to reduce their standard of living, some by as much as 51 percent, to avoid outliving their financial assets and that households with a guaranteed source of retirement income outside of Social Security, such as a lifetime annuity, showed greatest chance of financial success.”

5 questions about annuities

The good news is that immediate annuities are pretty straightforward.  Here are a few questions you’ll want to answer if you consider an annuity as part of your retirement portfolio:

 1. How much of your retirement savings will you use to purchase an immediate annuity?  Financial experts advise that this type of investment is best for only part of your savings leaving you adequate money for unexpected expenses and risks that are not insured.

 2. Do the annuity payments just apply to your life, or to you and your spouse (joint and survivor)?

 3. Does your annuity payment include inflation protection? 

 4. Is the insurance company financially strong and one that you have confidence will be there to pay throughout your lifetime?

 5.  Have you compared immediate annuity quotes from several companies to make sure you are getting the right annuity for your needs? 

An immediate annuity is like creating your own pension plan.  Like any financial product, it may or may not be the right solution for your retirement needs.  And purchasing an immediate annuity is a permanent decision, so consider your options carefully.

An immediate annuity does have the benefits: it increases the probability that your savings will last a lifetime; it makes budgeting easier by giving you predictable payments; and it provides peace of mind knowing that these funds are not subject to market fluctuates and are guaranteed.

A frequent question we hear from our customers at Longevity Alliance  is “Should I change my Part D plan this year?”  The answer is – it all depends.

 Here are common reasons why people change Part D plans:

• The insurance company is no longer offering the plan
• The list of drugs covered (formulary) and co-pays have changed.
• The prescription drugs taken have changed.
• Changes in prescription drugs are expected next year.
• Not happy with the service from your Part D company.
• Premium prices went up significantly
• Employer dropped retiree health care benefits
• Moving from a Medicare Advantage plan

You may have some of your own.  But the important thing to know is that, except for a few exceptions, this is the one time in the year you can switch your Part D prescription drug coverage.  

You can switch Part D plans from Nov. 15 – Dec. 31.

So now is the time to find out if changing your Part D plan makes sense. 

Medicare has a Part D comparison tool on its website that can be helpful in getting started on deciding whether you need to change plans.  

If you decide to call an insurance company or an insurance broker to compare Part D plans make sure you have this information handy:

1.   The name of the plan you now have
2.   The prescription drugs you anticipate taking in 2010
3.    Why you think you might want to change plans.

 That will really help the person on the phone get you the best information on which to base your decision.

Another tip– don’t wait until the deadline is close.  Get your information now, so if a switch is the right thing for you to do you can be ready to apply when Nov. 15 comes.

Long-term care insurance doesn’t have to cost a lot.  A new survey says that a 55-year-old can expect to pay $723-per-year for a base level of protection if they are married or $1,060 if they are single.

At about $20 per week, an individual can purchase a pool of money of about $172,000 to pay for long-term care services in the future. Wait until age 65, and the cost estimate increases to $63 per week based on age, higher coverage level to keep pace with inflation and lack of a good health discount, according to the American Association for Long-term Care Insurance.  “Over half of all individual applicants are between ages 55 and 64, and one third purchase a daily benefit of between $100 and $149,” the survey found.

 While the cost of a policy will reflect your individual needs and preferences, here are some basic facts about the cost of  long-term care insurance:

 Age – the younger you are the less the cost of your premium will be.  That’s why it has become popular to purchase LTCi in your 50s.rather than in your 60s or at retirement.

 Health – if you’re healthy you can get a discount of about 10-15% depending on the insurance company.  The more health issues you have, the higher the cost of the coverage, or you may find that you don’t qualify at all. 

Partner discount – almost all companies offer a spousal discount – a discount of about 30% if you both apply and are approved for coverage.  But that benefit can extend to people living in the same household whether domestic partners, or family members (sisters, mother, daughter etc) living together.

 Loyalty discount – some companies will provide a discount if you own another type of policy with them (health insurance, annuity, life insurance etc.). 

 Family health history – If you have a family history of chronic disease such as Alzheimer’s, MS, Parkinson’s, stroke, etc. you may want to purchase a higher level of coverage (daily benefit and years of coverage).

 It is important to know the cost of long-term care coverage in your area (or where you will be living when you retire) since that will be the basis for deciding the daily benefit amount.  And whether you want insurance to cover most of the cost of care or whether you want insurance to cover a portion of the cost of care and you’ll pick up the rest.

 But one of the most important things to do in buying long-term care insurance is to get rates from different companies.  Rates vary dramatically, and some companies have better rates at certain ages than others.  An agent knowledgeable in long-term care insurance can help guide you.

 And remember, long-term care insurance funds long-term care.  You’ll benefit from first having a plan for long-term care – do you want to stay at home as long as you can?  Will you move to a continuing care community?  What roles will family play in your care? Having thought through questions as these will help you determine if long-term care insurance is right for you and the right level of coverage.

So don’t let fear of high costs keep you from looking at long-term care insurance. If you end up needing care the costs can be astronomical– and  then it’s too late to consider insurance.

When a loved one falls, you can see the physical injuries—but the emotional injuries are often just as severe. New technology may help those recovering from a fall feel more confident and be more active.

 More than 25 percent of elderly limit their activities after a fall, refusing to go on walks outside, or visit friends out of the fear they may fall again. Home monitoring – being able to track a person’s movement and get them help when they need it – is an important advancement since it has the potential to reduce cost of care and keep more people at home longer.

 Falling is the leading cause of death from injury for people age 65 and older.

 You have probably seen the advertisements for Personal Emergency Response Systems (PERS) like the one that says “Help I’ve fallen and can’t get up”. While this technology has advanced over the past few years, it requires the individual to wear a button that they can push to get assistance.  A monitoring box in the home picks up the alert and calls the emergency response center. 

 The next generation of home monitoring systems is far more advanced.  Sensors attached to the wall are able to register activities in the home, such as when the person gets out of bed and whether she stops at her medication dispenser, and can alert loved ones to deviations in routine that might indicate an accident or illness. The caregiver is updated by an electronic computer report every morning.

Monitoring systems such as these aren’t found in many homes yet. And for some, privacy is an issue.  But this type of system can bring peace of mind to long-distance caregivers and continued independence to an older person.  The basic package can range from $50 to $85 a month for the motion sensors and remote monitoring system.

Paying for a System

A PERS can be purchased, rented or leased.  Neither Medicare nor Medicaid (in most states) will pay for the equipment, not will most insurance companies.  Purchasing generally costs between $200 and $1500 plus a monthly fee of from $10-$50.

For individuals with long-term care insurance, some policies allow you to use your benefits to pay for “transition” assistance.  It may also include minor home modifications that assist you in staying at home longer. Check your long-term care policy or call your insurer.  If you are purchasing long-term care insurance and staying at home for as long as possible is important to you, check to see if your policy includes a transition expense allowance.

 Here are some tips from the FTC   if you are shopping for a PERS.

• Check out several systems before making a decision.
• Find out if you can use the system with other response centers. For example, can you use the same system if you move?
• Ask about the pricing, features, and servicing of each system and compare costs.
• Make sure the system is easy to use.
• Test the system to make sure it works from every point in and around your home. Make sure nothing interferes with transmissions.
• Read your purchase, rental, or lease agreement carefully before signing
• Ask if the monitoring center is available 24 hours per day, 7 days per week.
• Ask about the average response time and staff training.