There is so much to consider when planning for the ideal retirement life that it can sometimes seem overwhelming, hence we may decide that it can wait another day, year, or decade. We don’t always take the time to consider all the “what if’s” associated with our retirement plan. Let’s face it, the fun things associated with retirement like deciding on the places we want to travel to visit, family members we want to spend time with during the various seasons of year, and the fun hobbies we want to partake in are way more satisfying for our psyche.
Have you heard the word “inflation” used much when speaking to a college economics professor about an assignment or financial expert such as a financial advisor regarding how much money it will take 15, 20, or 30 years in the future to retire? Think of inflation this way, every dollar you own today will buy less goods and services in the future due to the rising cost to purchase those goods and services.
Health care costs
Regardless of when you decide to plan your retirement, it’s very important to have an idea about how much healthcare may cost in retirement. It has been said that one of the most expensive cost associated with retirement is medical cost. As we age our health decreases and we have to seek medical attention more frequently. A retired household faces three types of healthcare expenses:
- The expense of premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers prescription related expenses). Typically, these are taken out of a person’s Social Security check before the funds are sent to the recipient.
- The expense of copayments related to Medicare-covered services.
- The expense of dental care, eyeglasses, and hearing aids, which are typically not covered by Medicare.
According to a 2016 HealthView Data Report, health care inflation is expected to average slightly over 5.1% annually for the next 20 years. A person retiring today could face more than $33,000 in total retirement health care costs than a person who retired a year ago because of health care inflation.
A healthy married couple, age 65; retiring this year can expect to pay $377,412 over their lifetime. As this example demonstrates, there is an overwhelming increase in healthcare cost. The best advice is to not procrastinate with saving for retirement, consult with experts and try to plan ahead. As Benjamin Franklin said, “Don’t put off until tomorrow what you can do today.” The sooner you begin the smaller the amount of money you will have to put away because time will be on your side.
The amount you'll spend on healthcare during your retirement depends on a number of factors, including how healthy you are, how long you'll live and the level of healthcare coverage you want. When you decide to retire can make a significant difference to your healthcare costs. On average, a retiring couple will need about $10,000 per year to pay for out-of-pocket healthcare cost. A financial professional can help you estimate your future healthcare costs and incorporate them into your overall retirement income plan, as well as show you strategies that include guaranteed lifetime income to help you address your healthcare cost in retirement.
Leaving some of your estate to worthy causes
Do you donate money to charity each year? Perhaps you donate to an organization dedicated to finding a cure for an awful disease that has affected your life or the life of your loved ones.
Although charitably inclined, you may be concerned that if you are too generous, you may not be able to comfortably support yourself for the rest of your lifetime. Consider making charitable gifts that will take effect only when you have passed away.
Voltaire, a French Enlightenment writer and philosopher, once said that "the man who leaves money to charity in his Will is only giving away what no longer belongs to him."
Leaving money to charity may also help to preserve your estate and allow for greater amount of assets to be passed to your family or friends.
If your estate exceeds the applicable threshold, estate tax will have to be paid and the amount remaining for your heirs will be less. Any amount left to charity will reduce the value of your estate thereby reducing or eliminating estate tax.
Every estate plan is different, it is important to choose the most beneficial option when determining what asset to leave to charity, what amount to leave to charity and what planning technique to use to do so.
Tips for protection from elder abuse
While it's not technically too late to start setting up a plan for your loved one once he's been diagnosed with Alzheimer's, it's not exactly ideal either. Further, studies show that financial decision-making ability reaches its peak at age 50 and begins a steady decline thereafter, generally falling off sharply by age 80. Importantly, most individuals have no perception of this decline in their financial cognition. So, the earlier you can start putting plans into place the better, with age 50 representing a nice round jumping off point for the conversation.
The first step is always to sit down with family and help accurately and honestly assess what sort of resources can be put forth towards monitoring the situation with family members or parents. The first question you should ask a family member is: are they willing and able to review their financial planning documents or bank statements? Is their financial advisor geographically located in the same area where you can go sit down and discuss and bring in some oversight with a professional? By embracing a professional, communicating with them and involving them in the planning process you’re creating a "net" of sorts where an advisor is not only handling his or her area of expertise, but there are often multiple people looking at most aspects of the plan. Very little escapes scrutiny from multiple sets of eyes.
If you start planning today, you can face the future with more confidence. Please feel free to contact someone at your local First United Bank location to help you get started on the path to financial well-being.
This article was written with contributions by Tina Pall, Robyn Fain - Investments Representative, and Jennifer Henagar - Director of Financial Well-Being.