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?

 Medicare and Social Security are in pretty good shape according to the 2010 Annual Report of the Trustees.  That’s good news for all of us.  But especially those who are retired or close to retirement and counting on specific benefits from both programs. 

The report said that Medicare is looking much healthier, thanks to the changes in the health care reform bill that reduces costs for prescription drugs and physician services..  The Hospital Insurance trust fund is expected to remain solvent an additional 12 years – until 2029.  While Medicare finances have improved, further reforms will be needed. 

It is not quite so rosy a picture for Social Security, but there’s no reason for alarm.  The recession created a double-whammy of fewer workers and more early retirees.  So Social Security expenditures are expected to exceed tax receipts in 2010 for the first time since 1983.  Read the full report here. 

 “The fact that the costs for the program will likely exceed tax revenue this year is not a cause for panic but it does send a strong message that it’s time for us to make the tough choices that we know we need to make,”  said Michael J. Astrue, Commissioner of Social Security. 

The report said that the deficit is expected to shrink substantially for 2011 and to return to small surpluses for years 2012-2014 due to the improving economy.   But as the baby boomers begin retiring in larger numbers in 2014 the number of beneficiaries grows substantially more rapidly than the number of covered workers. That’s the problem we’ve been talking about for years – too few workers to support the number of retirees.

So for those nearing retirement, counting on Social Security at current levels sounds pretty safe.  But, the changes will continue to come in Medicare to keep the program financially sounds.  That means it will be more important than ever to review your Medicare insurance plan each year. Expect that to be particularly true for Medicare Advantage and Medicare Part D plans.

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.

Whether you are nearing retirement or already retired, arworking after e you thinking about an “Encore career?”  For some, encore careers are simply figuring out new ways to keep working.  For others, encore careers can be the beginning of a new chapter where you follow a passion or interest in the work you seek.

There’s  free webinar on June 17 at 8 p.m. about Encore Careers with a panel that’s worth a listen.

You can join Pulitzer Prize-winning journalist Anna Quindlen, best-selling author Daniel Gilbert (Stumbling to Happiness), and Civic Ventures CEO Marc Freedman (author of Encore: Finding Work That Matters in the Second Half of Life) in a lively discussion on all aspects of preparing for an encore career.  Moderated by ABC’s Charles Gibson and sponsored by Merrill Lynch, this free, live event takes place during a webcast this Thursday, June 17, at 8 p.m. (ET)   click here to find out more and submit a question. 

As life expectancy increases, and retirement funds slowly work their way back, many people are turning to encore careers.  I’ve run into many people too who are simply bored and ready to re-engage in the workforce in a different way.  If so, check out the webinar and find out more about encore careers.

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!

If you are lucky enough to have a pension (a defined benefit plan that sends a check every month) then it’s increasingly important to know about the health of your pension plan.    Just like individuals and their 401 K’s, pension plans got hit hard by the recession.  That left many underfunded and unable to meet their pension obligations to individuals.

This article from Kiplinger’s points out that the Pension Benefit Guarantee Corporation (PBGC) took over 129 plans last year…and 2010 looks like it will be event worse. 

It’s not just bankrupt companies.  New hires and current hires are finding their pension benefits change as even healthy companies look to trim their obligations to future retirees.  A pension fund approaching 80% funding is a signal to carefully consider the role  pension payment plays in your retirement. And if you are planning on taking a lump sum payment, note the limitations mentioned in this article if the fund is at 80% funded.

So if you retirement planning counts on a pension payment every month, take time to read the annual statement you receive about the funding of your pension plan.  And if you have the resources, continue funding your own retirement with contributions to a 401K or IRA while you are working.

Control, choice and independence are what we want as we age.

Research reports confirm these are high priorities.  Yet, we often fail to plan and take the steps necessary to have a better chance at living out our life in the way we want.

Take, for example, new research that shows 1 out of 4 will need someone else to make end-of-life medical decisions for us.  And where people had the right documents in place, their wishes were carried out according to family members interviewed as part of the survey.

The study, published in the New England Journal of Medicine, concluded that advance directives – living wills and health proxies chosen to make end-of-life decisions – are “important tools for providing care in keeping with patients’ wishes.” 

If concerns about legal fees are the reason you are putting off getting these documents in place, you don’t need a lawyer. You can download copies free at caringinfo.org. The documents are state specific. If you’ve moved to a new state recently, this is a good time to update your advance directives.

For those with life threatening health conditions, like cancer, you might find this information from the National Cancer Institute helpful in understanding the role of advance directives.

Another way to preserve choice, independence and control is to have a plan for long-term care and know how you will pay for that care.   An estimated two-thirds of people over the age of 65 will need some form of long-term care.    

Since Medicare generally does not pay for long-term care (custodial care helping you do things you can no longer do for yourself), you will need to pay for care yourself, spend down your assets to qualify for Medicaid, or count on family and friends.  Long-term care insurance is one way to shift some of that financial risk to an insurance company.  Whether or not long-term care insurance is right for you depends in part on your health, your financial situation and your age.  Make sure you speak with someone knowledgeable about long-term care insurance who will customize policy benefits reflecting your situation and always get insurance quotes from 2 or 3 companies since they can vary widely.

Planning for long-term care and end-of life is something many of us put off…until later.  But having the right documents and plans in place can be a great benefit to your family.  

And it gives you a better chance of knowing “ I did it my way.”

Helping your parents?  Here’s an article from the Baltimore Sun on documents you need to help  your parents with their finances.

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.