Be Prepared: Some Expenses DOUBLE at Retirement

The cost of living is always a big concern, but as we age some items skyrocket!  Here is a list for your review during your Social Security benefit planning of what goes into this calculation:

  • Food and beverage………will stay the same at retirement
  • Housing . . . . . . . . . . . . . .will increase by 12% at retirement
  • Apparel . . . . . . . . . . . . . . remain unchanged
  • Transportation . . . . . . .  will be reduced by 25%
  • Medical . . . . . . . . . . . . . . will multiply by 200%
  • Recreation . . . . . . . . . . .  remain unchanged
  • Education . . . . . . . . . . . . will be reduced by 50%
  • Other . . . . . . . . . . . . . . . . remain unchanged

When reaching retirement, two items stand out as huge increases to the Consumer Price Index:  housing and medical.  If a retired couple have health problems, this added expense can drain their liquid assets.  For example, if an elderly person needs to go into a long-term care facility, it may only take one or two years to deplete all the money they have saved their entire life.  When once spouse uses up the savings and then dies, this leaves the surviving spouse in a tragic position financially.  

This financial tragedy is not being talked about enough.  My young clients don’t talk about the future, it’s only my older clients, usually a surviving spouse, who comes to me and lays out their limited funds to live on for the next 15 years. Preventative measures are needed long before you retire.  I plead with you to pay attention so this does not happen to you.

There are four ways to prepare for the added medical costs that will certainly come along as we age.

  1. Save 10 percent of your gross income for your entire life.  Yes, even save after you have retired.  By establishing a savings habit for a lifetime you will certainly have money for emergencies and surprises.  If you can’t even imagine saving 10 percent right now. Work on creating the OnePercenthabit by saving just 1 percent of your monthly income and then work up from there. Let’s say you are earning $3,000 a month. To save 1 percent of that, all you need to do is put $30 away. Anyone can do this! Once you have established a savings habit, go to 2 then 5 and finally 10 percent.
  2. Organize your assets so you don’t own anything.  Consider creating an irrevocable trust and place the majority of assets into this asset protection tool at least five years in advance of needing to go into long-term care.  The Medicare and Medicaid plans do not permit you to own more than $40,000 of assets or they will not reimburse your expenses.  Rule of thumb is to create an irrevocable trust before age 55.
  3. Purchase a long-term care policy that will pay these monthly expenses if you need to enter a care facility.  Long-term care can be expensive, as much as $25,000 a year or more.  It is wise to do something now about the need for long-term care, which 1 in every 4 elderly people will need. If your premium is $6,000 a year and you need a $4,000 a month benefit, you can do the math and see that if you paid this Medicareannual premium of $6,000 for 10 years, it will take less than 2 years to get all your money back.  A recent statistic shows the average length of stay in a long-term care facility is 4 years.  You can judge accordingly.
  4. Add a long-term care rider on an insurance product that pays for hospice and long-term care expenses as needed.  This can be placed on a life insurance policy and/or annuity.  When a long-term care provision is purchased as a rider on an annuity, for example, the premium is lower than the third option of purchasing an individual policy as a stand alone policy.  An important thing to do, which many people as they age do not take seriously, is eating properly and staying active. Once you’re out of your 50s, your chances of protecting yourself from bad health and long-term care goes down exponentially. Take charge of your life now so you can avoid expensive medical problems as you age! Diet and exercise have proven worthy of the effort, over and over again.  While life keeps coming and we all might get cancer or other health issues, planning the best you can while you are able will serve us the best.  

For more specific information about how to manage your finances so you can afford to take this preventive measures, contact me at peter@moneymastery.com.