As baby boomers approach retirement, many find themselves in different economic circumstances than they planned. Recent economic events have taught us the downside of risk, yet careful planning can help soften the impact. Your retirement plan can stay on track if you focus on these six key risks.
Health Care Risk
Rising medical and prescription drug costs, fewer employer-sponsored retiree benefits and limitations of Medicare are all impacting income and retirement savings. According to Medicare. gov, estimated health care costs for a 65-year-old range from $3,000 for someone in excellent health to $10,000 for someone in poor health, including premiums, deductibles and co-pays but not including long-term care, vision or dental expenses.
Inflation and Taxes
With inflation reducing purchasing power and taxes impacting liquidation strategies, less money will be available to spend or invest in retirement planning.
Americans are living longer and the possibility exists that they could outlive their resources. There is a 10 percent chance that a 65-year-old male will live to 97 years of age and a 1 percent chance the same male will live to 105 years of age. Yet, according to Medicare.gov, the average life expectancy is only 85 years, meaning half of the population will die before that age and the other half is expected to live longer.
Many Americans want to leave a legacy, making an impact beyond their lifetime by leaving a financial gift to a loved one or a charity. It is necessary to balance this desire with the need to fund an individual’s retirement.
Long-term Care Risk
The cost of care for an unexpected event, or long-term illness not covered by private insurance or Medicare is requiring more Americans to prematurely deplete their assets. A 2009 Life Insurance Marketing and Research Association survey of preretirees and retirees aged 55 to 75 found that health care and long-term care expenses together account for between 12 and 15 percent of retirement expenses, depending on the household income.
Participating in the stock market can give an individual’s retirement savings and income the potential to keep pace with inflation, however, volatility in investment markets can significantly affect retirement income and savings.
Resources for Retirement Planning
As you think about and plan for your retirement needs, use the below calculators to help determine your needs.
- Retirement Savings Calculator can be used to show how contributions can affect an individual’s ability to fund their retirement.
- Cost of Care Calculator can help you better understand the potential cost of long-term care services.
- Lifespan Calculator can be used to estimate how many years an individual may live past retirement. Jodi Vawdrey