When we think of retirement, we tend to think of all of the things we plan to do with our time when we are no longer required to go to work every day. These plans may include travel, grandchildren, and golf clubs. The trouble is that most of what we envision is part of the “active years” of retirement (first article of this series featured in Issue 8 Vol 3). We still have to plan for the later years of retirement when we aren’t able to be active… do we have a picture in our heads of those years?
Within retirement, there are three main phases to consider: the Active, Slowing, and Convalescent periods. I’m dealing with each of them in successive columns. Let’s look at the third one here.
The Convalescent Period. Eventually, a time will come when we find ourselves bound by geography and ability. We need to rely more on others in our activities of daily living. Despite our protestations, we can’t do what we were once able to do. In our planning, we shouldn’t neglect to prepare for this time in life to ensure our caregivers know our preferences and help facilitate our desired life choices. We may need to adjust our living arrangements to accommodate our changing abilities.
Retirement is an end-of-life phase. Estate planning is an essential element of proper planning—especially ensuring for the continued well-being of a surviving spouse from. (See my first column). Preparing to have help, when needed, by planning for Long-Term Care (LTC) costs is another important element (see my second column in Vol. 8 No. 4 Related to both of these is a consideration for our general health. We can be very careful of our diet and exercise, avoid contagions, and not take unnecessary risks—and still only have limited control over our longevity. As a group, life expectancies are increasing. As individuals, we simply do our best to take care of ourselves.
Our bodies are organic machines. They take care and maintenance and wear down over time. Although many of us plan to keep working in some capacity in retirement (68% in a survey by the Employee Benefit Research Institute), it doesn’t always work out (28% actually did). The number one reason for this unfulfilled expectation is due to health problems or disability.
Access to healthcare and the costs of coverage and care loom over retirement financial decisions. Even though most retirees will rely on Medicare beginning at age 65, it is an insurance program—costs are projected based on expenses. As we get older, our healthcare needs typically grow and so do our expenses. Inflation of healthcare costs has been well above average inflation in the economy for decades. An aging population with increasing government and insurance benefits drives prices higher. Planning for healthcare expenses in retirement is growing in importance every year.
Bear in mind that planning for Medicare comes with deadlines. Those who don’t sign up for Parts B and D at the right time may be subject to significant permanent penalties. Know how Medicare relates to other coverages and don’t miss the filing deadlines!
Another Medicare cost consideration is an annual surcharge based on income. Those with significant retirement incomes will likely encounter additional amounts added to their premiums. One way to help avoid this is to plan ahead to take advantage of Roth and Health Savings accounts. These sources of income aren’t considered in the surcharge calculation (as long as HSA withdrawals are for healthcare expenses).
Choosing where to spend the retirement years is more than deciding who has the best amenities for an active lifestyle. Location will determine taxation, access to healthcare, cost and availability of Long-Term Care services, and quality of life. Florida isn’t just a common destination for retirees for the lack of snow. As retirees have sought the warmer climate over the decades, infrastructure has followed to accommodate the needs of an aging population. It may be personally difficult to uproot from a lifetime in a locality, but it is an important consideration for a comfortable retirement.
We may have a picture of retirement in our minds that seems care-free and relaxing. The reality is that we will only realize it when we have prepared for the eventualities of life. Having a sound plan is the path to financial confidence and a comfortable retirement.