Retirement, Now What?

The transition from working a 40 hour week to retirement can run many unexpected courses. Some people retire before they are ready due to disability or downsizing. For many people retirement means not working, for some people it means working less. Many retirees take part time jobs in retail, fast foods and some have crafts and hobbies that bring in extra income.

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People as they grow older look for things to fill their life with meaning. Volunteering, hobbies, socializing, church, caring for grandchildren and exercise can help fill the days when someone leaves the workforce. Many people in early retirement ask themselves how they ever had time to work.

Hobbies like golf and gardening can keep seniors very busy. However volunteering in the community, church or caring for grandchildren can be more fulfilling. These activities contribute to a healthy active retirement. Programs like Silver Sneakers are targeted at the need for seniors to get moving or keep moving. Silver Sneakers is sponsored by health insurance programs and gives seniors access to gyms like the YMCA and special classes that help seniors stay motivated toward fitness goals.

The most important thing that seniors sometimes underestimate about work is how important the daily social interactions are. It is important to develop and maintain relationships with friends and family during retirement. People who are engaged with friends and family are happier and healthier. So focusing on your social network is essential to a happy and healthy retirement.

Estate Planning Essentials

Estate planning isn’t just for the rich. Certain basic estate planning measures should be taken by everyone. An attorney can help you prepare all of the estate planning documents you need. Some people prepare a will using forms purchased online or at a business supply store. Most people benefit from the advice and expertise of an attorney.

1. Will-  It is especially important for people who have minor children to establish a will. A will determines who will care for your minor children. A will also determines who will get your financial assets, personal items and real estate when you die.

2. Advanced Health Care Directives-  If you become incapacitated while terminally ill and are unable to make decisions about life support, an advanced healthcare directive can communicate your wishes to healthcare providers.

3. Healthcare Power of Attorney-  With a Healthcare Power of Attorney you can identify someone to make healthcare decisions for you in the event of your incapacity. Make sure the individual is good at making decisions under pressure and understands your desires.

4. Living Trust- A trust is legal entity, like a corporation that lives on after you do. If you have a trust you are able to control how assets are distributed long after you die. There are also ways that a trust can minimize estate taxes.

Please visit the CNN Money Estate Planning Primer for more details on estate planning.

 

Long Term Care

Long term care is not medical care, and is not covered by Medicare, or individual health insurance. 

Long term care is for people who need help with the activities of daily living.  According to the Department of Health and Human Services, the "activities of daily living," or ADLs, are the basic tasks of everyday life, such as:

•           Eating
•         Bathing
•          Dressing
•         Toileting
•         Transferring. 

Most long term care happens at home, however long term care can take place in Adult Day Care, Adult Foster Care Homes, Assisted Living Facilities, and Nursing Homes. Medical Insurance does not cover Long Term Care. 

The vast majority of Americans do not have long term care insurance, even though according to the American Association for Long Term Care Insurance, “For someone with a 90-day Elimination (waiting) Period, the lifetime chance of someone buying coverage at age 60 and using policy benefits was 35%. So, 35% will use their coverage and 65% will not. ” The majority of people will use their life savings to pay for long term care, pass along the burden to their family or to the state through Medicaid.

When I ask clients how they plan to deal with the costs of long term care, the two top tongue in cheek responses are I have a .45 next to my bed or my daughter  is a nurse.  Both answers are very unrealistic. What if the daughter who is a nurse needs to work and save for retirement?

In general people who do not have any savings to protect don’t have many choices, their care is going to fall to family and to Medicaid. However there are choices to help people protect their family and their savings from the cost of long term care. Options include traditional Long Term Care Insurance, Short Term or Recovery Care Insurance, Hybrid Long Term Care Life Insurance and Annuity contracts.

U.S. Department of Health and Human Services 1990

American Association for Long Term Care Insurance

Retirement Income Planning

According to the Social Security Administration, before Social Security; the elderly, orphans and disabled people often depended on charity and lived in almshouses or workhouses that were funded by taxes.

 Over time, trade association called guilds and fraternal organizations also helped provide for the needs of the elderly, sick and disabled. Eventually defined benefit pensions and social insurance programs were developed by companies and governments to provide for retirement.

In 1935, The Social Security Act was passed as part of the Franklin Roosevelt’s New Deal. Although the Social Security system was not the first government social insurance program, it is a model of success.

If you were born before 1937, you reached full retirement age at age 65. Full retirement age has been adjusted to age 67 for people born 1960 or later. The chart below shows how benefits for spouses and retirees are impacted by early retirement.

Full Retirement and Age 62 Benefit By Year of Birth

Today people can live twenty to thirty years or more in retirement. Social Security is strained by a relatively smaller workforce and growing life expectancy. Here is a link to the Social Security Website where you can set up an account to check on your earnings record and get an idea of how much your Social Security Benefit will be during retirement.

The number of companies offering defined benefit pension plans has steadily declined in recent years. Employers are increasingly shifting the responsibility for retirement income planning to the employees.

IRAs and 401k are very good ways to put money away on a tax deferred basis for retirement. Although Individual Retirement Accounts (IRA), and 401K retirement savings plans have grown in popularity, most people have little or no retirement savings. Most financial experts agree that you should start saving for retirement as soon as you begin working.

As popular as IRAs and 401ks have become, many retirees find they are not well suited for distributing income and insuring that you do not run out of income during retirement. Fixed annuities offer retirees a way to insure their retirement funds because they do not lose money due to market fluctuations, they also provide for income distribution options that can guarantee income for life.