Longevity and the economy are combining to redefine the way we think about retirement…and fund our retirement dreams.  

 Here’s a great article from US News & World Report about 5 retirement myths.  Here are the five myths they cite:  what would you add?

1.You can pick your retirement date.  Ask all the people who ended up taking Social Security at 62 in the last year because they couldn’t find work.  Research continually shows that over 40% of us leave the workplace early because of health issues or layoffs. 

2. $1 million doesn’t get you a lavish retirement.  Calculate your expected Social Security.  Figure out how much you can take out of your retirement savings without going broke.  If you’ve got a pension, consider yourself lucky.  And don’t forget to calculate in Medicare insurance costs – that can run $200-$300 per month.

 3. Social Security will be around when you retire.  Lots of controversy about this.  But generally if you’re near retirement age, experts say you can count on Social Security payments (though maybe less than you planned).  But younger folks are more often doing their financial plans without calculating Social Security. Figuring if it comes, it’s a bonus.

 4.  You’re too old to start saving.  Never too old!  And the rules on 401(k) plans let you do catch up contributions each year once you are older than 50.  That can help boost the retirement savings.

 5. Retirement is permanent.  More frequently people are working in retirement.  Picking up a part-time job or starting a new career – often referred to as encore careers.  With longer life expectancy and retirements that can stretch to 30-40 years, keeping engaged and making some money can lead to a more fulfilling life. 

What myths about retirement would you add to the list?

Anyone closing in on retirement knows that health care can be one of the biggest unknowns in retirement. 

What if you have a stroke and need to pay for long-term care?  With retiree insurance disappearing, more retirees face monthly premiums for Part B of Medicare, a Medicare supplement plan and Part D prescription drug insurance or a Medicare Advantage plan.  If you develop a chronic health condition, some plan co-pays and deductibles can make a pretty big dent in the retirement budget. 

So it’s surprising that in a recent survey 68% of people said they did not want to talk about health care with the person from who they seek financial advice.  And these were people aged 60 and over, who one can assume are at least thinking about life without a pay check.  (The survey was conducted for Senior Market Advisor by the Boomer Project.) 

While the research didn’t provide any insight into the background of those answers, our guess is that those responding are still locked in a world where health and money just didn’t connect.  But as more  health care costs are shouldered by the individual, it’s a dangerous perspective.  That’s why insurance to reduce the personal financial risk is so important.

 Here are three reasons why health care and financial planning should be linked in your retirement planning: 

1.  Health care costs can destroy your retirement savings.  Without adequate health insurance, you’re left to pick up the bill.  Remember, even Medicare covers just 80% of the costs – you shoulder the rest unless you purchase insurance such as Medicare Supplement or Medicare Advantage. And, the cost of prescription drugs can be astronomical.

 2.  Long-term care costs can top $100,000 per year in some states – they average about $79,000 per year..  Many people don’t realize that Medicare generally does not cover long-term care needs. If you have money, you will pay the bills.  Government supported Medicaid is only for those who have limited financial resources. Long-term care insurance can help shift some of the financial risk to an insurance company.

3.  Your health can change in a minute.  If you haven’t planned ahead on how to cover the cost and considered insurance to offset some of the risk, it’s probably too late now.  Long-term care insurance has strict rules on the health condition of those who qualify –you have to be in generally good health.  And sometimes it is just not realistic to think that family or friends will be able to care for you so you’ll face paying for the help you need. 

Whether you have a financial advisor who helps with your planning or you take care of your own retirement planning, don’t shrug off health care as not being relevant to your financial plan.

If you have a financial advisor, let them know about family health history especially if there are conditions such as Alzheimer’s, stroke, MS or heart problems.  And determine how much financial risk you can shoulder if you face a debilitating health issue and how much you should pass off to an insurance company.  You don’t have to buy insurance from them — that’s probably not their area of expertise.  There are experts in health care and long-term care insurance.

 If you are approaching Medicare age, find out what Medicare covers and what it doesn’t.  and make sure you get the right coverage whether it’s Medicare Advantage, Medicare Supplement or Medicare Part D.  Once you’ve got the coverage, you can better understand what risk you’ll have to cover through your own assets.

It’s the best way to protect your assets –and your family.

Fewer companies are offering employees individual investment advice or retirement planning services, according to a new survey.  About 40% of companies offer this type of assistance, down almost 10% since 2006. 

And as many workers know the traditional defined benefit pension plan is continuing to disappear:  Just 27% of companies offer a traditional pension plan compared to 48% in 2006.  At the same time the number of companies offering defined contribution plans (401 K’s) grew to 92% from 81%. The survey comes from SHRM (the Society for Human Resource Management). 

It’s not surprising given the economic conditions of the past few years, but it is ironic that at a time when we need the most help with retirement and investment, fewer employers are there to help.  Remember back in the early 2000’s when an increasing number of employers were offering retirement seminars (during the workday) to help employees plan for retirement?  Not anymore. 

What’s it mean?  You are on your own more than ever when it comes to planning  a financially sound retirement.  You’ve got 3 options: do it yourself or hiring someone to help you plan and invest or do nothing.  The worst option is the third option –doing nothing –because you increase your odds of outliving your money.

DIY: If do-it-yourself is your preference, check out the tools available through your 401(k).  Many of the fund companies have robust tools on their websites to help you figure out where to invest and how well you are doing in meeting your retirement planning goals.  The government website MyMoney.gov is a good source of information and referrals to tools and tips to help you with all aspects of financial planning. 

Professionals: You can get advice from a professional fee-only retirement planner.  If most of your savings is tied up in your company 401(K), you don’t need someone to manage your money, but you might want someone to help you figure out if you have your funds in the right type of investments, if you are saving enough to meet your retirement goals, debt management, savings, etc.  What you’ll get is a plan that you can implement yourself.  If you hire someone, make sure you check out their credentials. 

Also, make sure your planning includes looking at health care costs. What will health care cost in retirement (retiree health plans are fading too)?  Do you have a plan on how you’ll pay for long-term care if you need it?   

It’s unlikely we’ll see a return of these employee benefits.  So if your employer does offer retirement and planning benefits, consider yourself lucky and make use of it NOW.

Most of us spend more time each year figuring out where to vacation than how to meet our retirement goals.  Why?  It’s more fun and the results are more immediate.  Yet, we all know that the prospect of living the life we want as we get older depends a lot on good planning—and carrying out that plan.

Wondering if your finances are in shape to retire?  Retired and rethinking your retirement readiness?  There’s a new 15-point checklist from MetLife that cant help you gauge your retirement readiness. 

It’s a nice framework to think about different aspects of retirement, including but not limited to financial readiness. And it’s not presented as a timeline, but rather as a guide to move through – as quickly or slowly as you want – as you prepare for retirement. 

The guidebook with the 15 tasks and a copy of the survey results. 

The tasks are grouped into 5 topic areas:  work, leisure and activity, relationships, income and benefits and planning. 

The findings reinforce that planning matters. 

* The closer to retirement the more tasks are completed.

* Completing the tasks is an important bridge to retirement transition.

* Retirement savings and contingency planning continue to areas where people lag.

* Men are further ahead in planning retirement, especially the financial and economic factors, compared to women 

There’s nothing magical about the task list – pretty much common sense.  Yet, many of the categories are things that we skip along – especially as we get close.  For example, finding out about your retiree health insurance and benefits along with government plans like Social Security and Medicare are critical to your financial readiness to retire.  But many people put it off until the last minute or find out too late that they don’t have what they thought they would. 

Or consider how you’ll handle changes in social connections when you aren’t working or the impact retirement has on relationships (bet we can all share a story or two there).  One of my favorites is the women who went back to work after her engineer husband retired and looking for something to do took on the kitchen.  He put everything in the cabinets in alphabetical order.  My guess is thinking about the social and relationship aspects of retirement might have been to their advantage! 

So give it a trial run even if you’re not a “to do” list person.  You might find that you’re more ready than you even thought to retire!

Figuring out the right retirement investment strategy in this market is no easy task. So, many investment advisers are suggesting “a bucket approach” to retirement savings.

Christine Benz, Director of Personal Finance for Morningstar, recently told attendees at the American Society of Aging conference that the flight to bonds could be putting some retirees at further risk in retirement.  

“Retirees and pre-retirees burned by 2008 bear market appear to be fighting the last war.” she said.  She said there has been a massive stampede into bonds and bond funds over the past year ($330 billion in 2009). 

So, while Investors seem to be saying they’d prefer a small but knowable gain over the uncertainty of stocks, that’s a problem.  Unfortunately, the near-term prospects for bonds aren’t particularly bright, given the potential for higher interest rates. Given longevity, she recommends, most retirees need at least some stock in their portfolios.

So how do you do that with the experience of 2008 still fresh in your mind? 

She suggests a “bucket approach” to thinking about your retirement portfolio: 

• Bucket 1: Covers living expenses for years 1-5 of retirement; consists entirely of highly liquid investments such as CDs, money market funds, and short-term bond funds.
• Bucket 2: Covers years 6-15 of retirement; consists of high-quality intermediate-term bond funds and balanced funds.
• Bucket 3: Covers years 16-25+ of retirement; consists primarily of stocks, both domestic and international. 

 This way you’ve got ready-case to handle your current living expenses, but you are also planning for “retirement” that could last 20-30 years. 

She also recommended that near-retirees and retirees be proactive and inoculate their finances against three threats: 

Threat 1: Inflation

Solution: TIPS (treasury inflation-protected securities); stocks with “moats” (a stock that has a significant competitive advantage – Morningstar article on moats

Threat 2: Higher taxes

Solution: Roth IRAs, municipal bonds, and take maximum advantage of tax-sheltered options. 

Threat 3: Longevity (a good kind of threat…)

Solution:  Stocks as a component of all retiree portfolios, fixed annuities (but payouts are currently low), long-term care insurance 

It is broad advice and you need to determine what works best for your individual situation. 

 But thinking forward – rather than fighting the last fight – is advice worth heading.

The growing cost of retiree health care is a very real issue for millions of today’s retirees.  If you haven’t thought about health care costs in retirement, two new studies should give you some food for thought…and action.

Health care costs in retirement 

Fidelity Investments estimates that a 65 year old couple today will need $250,000 to pay for medical expenses during their lifetime, not including long-term care expenses.  By any standard, that’s a big number and pretty much matches up with the many other retiree health care expense projections. 

The Fidelity study of retirees  found that health care costs average $535 a month, or about one-fifth of an average couple’s total monthly expenses of $2,842. Among those surveyed, 11 percent said their health care costs are $1,000 a month or higher. 

Almost half (47%) are paying more each month for insurance premiums and out-of-pocket health care costs than they had anticipated in retirement. 

Fewer retirees will be able to count on retiree health insurance benefits from their employers.  And, as some know, even if you have it now, doesn’t mean it won’t change in years to come.  So segregating some retirement funds for health care costs is smart planning.  How much depends on your health and the amount of risk you cover through insurance. 

The cost of health care in retirement is 4.2% higher than Fidelity 2009 survey, and 56% higher than when they began in 2002. 

Worried About health Care Costs 

So it’s no wonder that 44% of U.S. adults are worried about health care costs.  A new survey from Harris Interactive and HealthDay found high concern among older adults.

How worried, if at all, are you about having to pay more for your healthcare and/or health insurance?

Harris Interactive, March 25, 2010

Preparing for Retiree Health Care Costs

So, what can you do to prepare for retiree health care costs?  

*Understand what Medicare covers and what it does not, the deductibles, co-pays.  Calculate the costs including your part B premium. http://www.medicare.gov

* Consider supplemental coverage and Part D or Medicare Advantage to help you cover what Medicare doesn’t.  http://www.laihealth.com

* If you choose to purchase insurance, shop and compare. It can save you hundreds of dollars– not just in premiums but in co-pays and deductibles if you find the plan that is matched to your health care needs. 

*Consider how you will pay for long-term care if you need it–whether you’ll pay for it out of your savings, purchase long-term care insurance to cover some or all of the costs or impoverish yourself and rely on government programs (Medicaid). 

* Health care reform will provide some relief on prescription drug costs for Medicare beneficiaries. 

But most importantly, sit down and figure out the potential costs and how much of a bite it will take out of your budget.  It’s a guess, to be sure.  And you probably won’t match the “average” costs sited by the research.  But you will walk away with a more realistic view of what promises to be one of your biggest expenses in retirement.

 Good news–we’re feeling much more confident about our retirement prospects.

 Bad news–  workers are not doing any better –in fact worse– at being financially prepared for retirement. 

 More than half of workers surveyed reported savings and investments of less than $25,000, according to the new Retirement Confidence Survey from the Employee Benefit Research Institute.

And, I’ll bet a lot of them say — not to worry – I still have time.  Or, I’ll just work longer.

But then the unexpected happens.

So, we see a big gap between expectation and reality about the age at which we’ll retire. 

 9% of workers say they plan to retire before age 60, yet 31% of retirees report they retired that early.  In 2010, EBRI found that 41% left the work force earlier than planned.  Why? health problems or disability(54%), changes at their company (26%) such as downsizing or closure, or taking care of a spouse or other family member (19%).  Just 5% cited a positive reason for leaving early.

What are workers worried about in retirement:

  * 51% are worried about medical expenses,

  * 61% are worried about long-term care expenses and

  * 35% are not confident they are doing a good job of preparing for retirement.

If you are confident and prepared -give yourself a pat on the back and keep at it. It hasn’t been easy, especially this past 18 months.

If you aren’t prepared, remember that you don’t always get to pick the time when you stop working. sometime it picks you.  While you are still working is the right time to create a long-term care plan and decide if long-term care insurance is the right way to help shoulder some of your potential long-term care costs.  Take the time now to understand how Medicare works and what it covers and does not cover, and what it costs or what your retiree health benefits will cost. 

It’s important information in figuring out your expenses in retirement.  Less than half of workers say they have tried to calculate how much money they will need in retirement. 

So if you’re feeling better about the prospects of retirement, take the next step and start planning today for your income, medical and long-term care needs in retirement.

There is a rash of recent articles about the financial state of the Social Security system and the impending retirement of baby boomer.  While there are numerous immediate financial concerns for retirees, the impending doom of the Social Security system is not one of them. 

Here’s an article from USA Today warning of impending doom. Here’s an article from CNBC that lays out many of the issues facing Social Security.  It’s worth a read to provide some perspective.

Social Security expert Nancy Altman reminded a group of aging experts yesterday that the 2009 Social Security Trustees reports says Social Security will have sufficient income to pay benefits in full until 2037, and at a 78% level after that.  Obviously, Congress will have to step in before that to put a plan in place for Social Security.  She’s chair of the board of directors of the Pension Rights Center.

What is alarming though are the statistics of how many people rely so heavily on Social Security to cover their expenses once they retire.  Altman says 2 in 3 retirees get half or more of their income from Social Security and 1 in 5 retirees get all their income from Social Security.

So, if you are still planning your retirement, and considering how long you will continue working and the sources of income you will have to draw on in retirement to pay your expenses. here are two things to think about in deciding when to begin Social Security payments:

1.  Rather than thinking of Social Security eligibility as a single age, think of it as bands of retirement ages.  The longer you wait to begin Social Security payments, the more money you will receive on a monthly basis. You can begin at 62 and take a reduced benefit or you can wait until your full retirement age (linked to when you were born) to receive full benefits or wait until say 70 and receive an even higher monthly payment.  

Here’s how it works. If your full retirement age is 67, the reduction for starting your benefits at

• 62 is about 30 percent;
• age 63 is about 25 percent;
• age 64 is about 20 percent;
• age 65 is about 13 and 1/3 percent; and
• age 66 is about 6 and 2/3 percent.  

Because so many of us rely so heavily on those payments in our retirement years, this is a really important decision in determining how much money you receive monthly to cover your expenses in retirement.  Here’s a link to the Social Security Retirement Estimator.   

2. The age at which Medicare begins and Social Security begins are no longer linked.  Medicare is age based – 65 (unless you are disabled) and based upon having worked 40 quarters (10 years of payroll tax payments). Social Security is generally 66 or 67, depending on the year you were born.

If you are not already getting benefits when you turn 65, you should call 1-800-772-1213 three months prior to your birthday so they can help you decide if you should sign up for Medicare. You should do this even if you plan to continue working or do not think you have enough work credit under Social Security, because Medicare enrollment period rules are very strict.

 If you would like to file for Medicare only, you can apply by calling 1-800-772-1213.

Making the right decision about when to begin receiving Social Security and signing up correctly for Medicare can make a big financial difference in your retirement income.

For example, if you do not enroll in Medicare Part B when you are first eligible (and not covered by an employer health plan) you’ll have to wait until the next General Enrollment Period, which is January 1 through March 31 of each year. You may then have to pay a higher Medicare Part B premium because you could have had Medicare Part B and did not take it.

So as you plan your retirement, make sure you know the rules around Social Security and Medicare.

Resources

 Social Security Administration Website         

  National Academy of Social Insurance – When to Take Social Secuity 

Longevity Alliance – Managing Risk in Retirement

When it comes to financial and retirement planning, it’s tempting this time of year to look back with a bit of “woulda, coulda, shoulda” .  But really, who could have anticipated the depth of the recession, job loss and stock market crumble. 

So rather than beating yourself up about what you didn’t do, focus on what you can do to make sure that you can weather the financial bumps a bit better and the financial road ahead is a bit smoother. 

New Year’s resolutions often include promises to change our financial lives.  Research from Fidelity Investments found that this year is no exception.  In fact, thanks to the economy more of us are resolving to change our financial ways.

For the coming year, 43 percent of individuals surveyed said they are more likely to consider financial resolutions, a potential jump of 23 percent. This number increases to 55 percent among those ages 35 to 44, who often are managing multiple financial goals such as saving for retirement and a child’s education and paying down mortgages.

So where do you start? Here are four tips for your financial New Year’s resolutions

 1. A return to basics.  Spend less, save more.

Saving more and spending less was the overwhelming mantra for most Americans when listing the top three financial resolutions they are considering. More than half (51 percent) said that saving more money was their primary focus, followed by spending less money (30 percent) and making or sticking to a budget (14 percent).

2. Have a plan and a goal.

Making tip #1 work requires having a plan in place to reach your goals and you modify the plan and goals when necessary. Whether you scratch it out on a notepad, use technology to build a detailed plan or use a professional advisor to help you, this is the step that gives you the biggest chance of successfully reaching your goal.  Otherwise a year from now you’ll find yourself back in the “woulda, coulda, shoulda” mode of thinking.  

There are lots of free planning tools available. Here’s an article from Kiplinger’s personal Finance reviewing three financial planning tools.  Other sites include. http://www.mymoney.gov,  http://www.mint.com, http://www.fidelity.com, http://www.vanguard.com or your 401(k) plan probably has free tools available to get you started.

If you are not yet retired, make sure you go to the Social Security website and calculate your benefits. It can be eye-opening! You’ll find an easy to use tool that helps you see the difference in your benefits depending upon how old you are when you retire.

3.  Rethinking credit.

Boy, if there is one lesson learned in the past year, it is how many of us treated credit like we never had to pay it back.  Many used it to fund a lifestyle rather than special purchases.  It’s true that the behavior was not only encouraged but enabled by many lending institutions- from banks to credit card companies to mortgage lenders.  Hopefully, lesson learned.

So, going forward, if credit is your “achilles heel” some good news is that you’ll find fewer “enablers” as the credit card issuers and banks tighten their credit terms.  And employing tip #1 and #2 can you get you on the path to rethinking the right way to use credit in achieving your goals.

This is also a great time to help young adults understand how to use credit wisely. Here’s a resource from Charles Schwab about talking to kids about money.

4.  Managing big risks

As you go through the planning process, you’ll want to consider how to handle the risks that may just be too big to finance on your own.  That’s usually where insurance comes in.

*Do you have the right amount of life insurance for your stage of life?

*Do you have a plan for covering the potential costs of long-term care and, if appropriate, do you have long-term care insurance?

*Do you have the right health insurance coverage?  And if you are a Medicare beneficiary, do you have a Medicare Advantage plan, or Medicare Supplement Plan and Part D Prescription drug plan?  If you have retiree health care coverage, have you thought about potential cost increases if your employer drops or changes coverage?

*For those who are working, do you have some level of disability coverage that can provide income if you are disabled?

*Is your home and auto insurance reflective of current conditions and have you comparison shopped it recently to make sure that your getting the right coverage at the right price?

Keeping your resolution

Although nearly one-third (30 percent) of Americans surveyed by Fidelity said it was harder to keep a financial resolution over other popular resolutions, 60 percent said they had stuck with their past financial resolutions versus 51 percent who kept non-financial resolutions.

Of the 31 percent who broke their financial resolution in past years, the average length of time they managed to stay with their resolution was a little more than three months (3.2 months).

But the vast majority (88 percent) of those considering a financial resolution said they believe the economic events of the past year will give them impetus to stick with them in 2010.

What are you going to do to make your financial resolution stick this year?

Most pre-retirees (ages 50-59) know that the economic downturn has changed their prospects for retirement, but it’s not necessarily translating into changing retirement planning behavior.

Baby boomers are considering working longer, but their savings rate is stalled and is unlikely to fund the retirement lifestyle they expect, according to the Retirement Fitness Survey, from Wells Fargo & Company.  Of those surveyed, 67% say their expectations for retirement have changed in the past year, yet only 23% are saving for more retirement than they were a year ago and a majority are saving the same.

The problem is that saving at the same rate, given their age, probably won’t get them to the amount they need to match their retirement lifestyle desires.  Those surveyed said they expect to need $800,000 for retirement, but they have saved only $300,000(median).  A big gap to make up. 

So if you find yourself in this position, what can you do to better plan  for retirement?

1.  Calculate how long your savings will last in retirement.  Do the math.  Of those surveyed, most said they planned to spend 10% of their savings each year and expect more than 20 years in retirement.  The numbers don’t work.  Financial experts say plan on withdrawing no more than 4% per year.

2. Be realistic about investment returns.  When they first started saving for retirement, these pre-retirees estimated growth in their savings of 8.7% per year. In fact, the compound annual growth rate of the S&P 500 from 1958 through 2008 was 6.6%.

3. Develop a formal retirement savings plan.  Only 35% of those surveyed had a formal written plan.  If you really want to be in a position to live the lifestyle you want in retirement, you need to have a written plan on how you are going to get there.  Then review it yearly, making adjustments as necessary.

4.Educate yourself about retirement costs.  Not just about savings, but the right time to take Social Security and the costs associated with Medicare. Knowing the facts on these two things can give you a better chance of meeting your retirement goals.

People are often surprised about the costs of Part B Medicare premiums as well as Medicare health plans to fill the gaps in Medicare. And, make sure you have a plan for how you will cover long-term care costs if you need assistance, since long-term care is generally not covered by Medicare.

76% of these baby boomers said they have changed their current lifestyle reflecting changes in the economy including less travel and adjusting to less income or job loss.

The next step is building a retirement plan that is realistic and achievable.

Resources:

http://www.Medicare.gov -learn about what Medicare covers and what it doesn’t

http://www.socialsecurity.gov- try the benefits calculator

http://www.longevityalliance.com -Managing risks with the right Medicare health plans and a  long-term care plan.