“When you come to a fork in the road, take it” -Yogi Berra
This classic by Yogi is a good way to think of retirement. Today’s retirement will look different than your parents or grandparents. I say this for lots of reason but the primary reason, for purposes of this piece, is longevity.
People today are living longer than ever before, and we can expect life expectancy to continue to increase. The reasons are somewhat obvious, advances in healthcare and people taking better care of themselves than in previous generations, being the most basic reasons, but there are lots more. For a married couple today, that are 65 years of age, there is a 40% chance of one spouse living to 85 and a 20% chance of living to 95. This could mean that you will be living in retirement for 20+ years.
When it comes to the above, if you accept this premise, then how do you prepare and what sorts of things do you need to think about?
First and foremost, because of improved health, people will need to think about their money lasting much longer in retirement than they may have ever considered.
Second, your retirement is going to look a lot different as the average 65-year-old is more physically and mentally active than a 65-year-old a generation ago. Given that, activities are going to play a larger role in your life. Your activities may run the gamut, but the first one that comes to mind is travel. Travel is one activity that you must budget for. When you’re retired, odds are you will be traveling a lot more, not because you have to, but because you want to.
But travel is only one activity, taking classes at a local college, cooking classes, golf, tennis, music… this list goes on and on. When I look at my clients with what I term “successful retirements”, they remain engaged. In however they define that … engaged. Not sitting home on the rocking chair watching the clouds.
One thing you are seeing as a result of increased activity levels are more communities popping up that are specifically targeting people 55+ who would like to maintain an active lifestyle. I’ve even heard of certain colleges and large universities attracting alumni back to campus with apartment or townhouse complexes near campus. This allows retirees to stay engaged intellectually at their alma mater and it allows the alma mater to play a bigger role in the retiree’s life and make a greater impact. And who knows, maybe the colleges and universities will be able to tap into the pool for donations and for expertise.
Healthcare – I think this is one of the biggest areas that people don’t understand, and I don’t pretend to either, but health insurance is going to matter and it’s going to cost you. Even if you only have Medicare, you will pay, and remember Medicare is not free. We all know how big an election issue healthcare is today … this is an issue that is not going away and unfortunately does not come with any easy solution. My guess is it will take years for the government to come to some sort of agreement to improve our current system. What that might look like and how it should be structured … I have no idea, I just know that having adequate insurance in place, and the means to pay for it, will be important.
And let’s not forget about long-term care insurance. We all know that the LTC industry is in tatters having badly mispriced the policies they wrote 20 years ago, never thinking that life expectancy would increase so rapidly. There are already some newer options in the market, and I would expect more changes in the next 5 years. The people that run insurance companies will figure out how to create a product that has the right benefit along with a profit for the insurance company. But despite the uncertainty of how plans will be structured, what you can be certain of is the benefit of having long-term care insurance as you get older.
So, what exactly is LTC and how does it compare to medical insurance? When you go see a doctor or have surgery your medical insurance or Medicare will cover some or all the expenses depending on the type of policy coverage. But what happens when you are simply unable to care for yourself, not able to perform certain daily activities of life, and maybe you are not informed enough to go to a nursing home for skilled care? Your choice at that point might be to stay home and having care come to you or go to an assisted living facility where you live semi-independently but have help. Who pays for that?
The answer is simple – either you or long-term care insurance. Typical costs for an assisted living facility, depending on the level of care needed, can run from $4-8,000 per month. So, from almost $50-100,000 per year. LTC can and may cover some or all of that, alleviating the need to deplete your savings or pay out of pocket.
I think as people hit their mid-fifties to sixties LTC insurance is going to be a conversation that more and more people need to have.
Let’s summarize the top things to think about in retirement:
- Longevity and life expectancy
- Having enough money to last
- Travel and interests
- A place to live
- Health care
- Long term care
What do all the above have in common? They all require a well thought out and well drafted financial plan that takes these and other factors into account. Give us a call and we would be happy to help you take the right fork in the road.
Peter Lang – Managing Director, Partner – HighTower Westchester
914-825-8631 – firstname.lastname@example.org
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