It is like asking people what they like to do on a sunny day. Some (like some of my family) would rather stay inside and do “inside stuff”. Others can’t wait for the winter to end so they can do “outside stuff”.
What does this have to do with retirement? Different people have different ideas of what retirement looks like. Some it looks like travel. Some it looks like constant outdoor activities. Some, it is Netflix. But some don’t have a clue what they are going to do in retirement and that is a big problem that stands in their way.
Even if you do have an idea of what you are going to do, there are other problems that creep up when it comes to retirement. The other two that loom large are running out of money and health care. Today I would like to write about how to solve these looming problems.
Running out of Money
This is the biggest problem that prevents a lot of people from retirement. In fact it is ranked as the top worry for pre-retirees and retirees. So how do we solve this equation? It depends on where you are in life.
For pre-retirees, I would suggest looking into a way to guarantee some income for your life. It is best if you can guarantee your living expenses. This can be done through combining social security with another solution that can bring you the income you need. But a word of caution, be careful about using all your funds to guarantee an income. That can be a hindrance if unexpected expenses come up.
For those who are already retired and you are getting concerned about running out of funds, I would look to our largest asset, your home. Your home can be a source of income that can last throughout your retirement. There are several ways to get the cash you need at the time you are retired. I wont discuss those options in this forum. Another option for retirees is to lower your lifestyle. Maybe go out to eat less, etc. This can help stretch your dollar further. Another idea to look into is increasing the rate or return on the money that you still have. If you are able to accomplish that, your money should last longer.
Of course, if those unexpected expenses come up, (like health care) how are you to solve that problem.
One of the largest expenses (if not the largest expense) in retirement is going to be health care. One of the major reasons it is a large expense is that the inflation rate on health care, according to the Bureau of Labor Statics, is 5% a year. That is the highest inflation rate of any category besides education (5.2%).
So how do we solve this problem?
There is no way to 100% know what kind of health care expenses that you are going to incur in retirement. But there is a way to plan for them.
For pre-retirees, you can look to insurance. With any insurance you have to decide if you would rather assume the risk (roll the dice that you wont need insurance) or transfer the risk (purchase insurance). Most pre-retirees believe that Medicare will take care of most their health care expenses. Let me be the first to burst your bubble to tell you that it likely will not take care of most your expenses. This is why Medigap insurance exists for you to transfer the risk to.
The next major health care expense is long-term care. When most people thing of long term care their first thought is nursing home. While that is a possibility, it is not the only long-term care possibility. The other two types to consider in assisted living and in-home care. With that said, how likely is it that you will need some sort of long term care? According to the American Association for Long Term Care Insurance (AALTCI), men are 55% likely to need long-term care and woman are a whopping 72% likely to need long-term care. Long-term care insurance exists to transfer the risk to them. Medicare is extremely limited when it comes to long-term care.
Medicaid is insurance for those who have very little assets or income. This insurance can help with long-term care expenses as well as medical expenses. However you have to make sure you have little assets (including your home) in order to qualify. There is also a 5-year look back (just in case you try to gift all your assets away). This is literally the insurance of last resort.
But if your health care is good, what do you even do in retirement?
What to Do
For a lot of people, their work is the center of their lives. The transition to retirement for them is a scary one. For example, every day you may go to lunch with co-workers, go to dinners with co-workers or attend work sponsored events. All of the sudden, these things are gone. Then what?
The most important thing is to learn about yourself. From there, you can figure out what to do. Some say travel. But to be frank, travel can only last so long. You have to eventually settle down. It is better to seek out activities that you can do over the long haul.
On our website, www.bridgetoretire.com, you will see an assessment that you can take that will help you in this area. There we can give you ideas that can help get you solve the problem with what to do. This assessment is under “our process à non-financial readiness”.
By no means are these the only problems in retirement. However, I hope that by reading this, it helps you with the biggest problems. Please feel free to reach out to at (435) 535-1630 or by filling out the form to the left.