Today, I received two articles that struck me as critically important for future retirees.
Article one was focused on claiming Social Security Benefits and how to maximize them for one's specific circumstances.
Article two focused on health care costs in retirement and how unprepared many pre-retirees seem to be (and where their blind spots are.)
Below, I share excerpts from both articles and offer conclusions up front: Investors are wise to consider these issues now.
Boardwalk Capital is happy to help our clients plan for such expenses, employing new software tools to help them set these specific goals. This process also serves to help them organize their various financial accounts while also creating forecasts fpr future asset values and income levels.
Social Security and You
According to the Social Security Administration, nearly 90 percent of Americans age 65 or older receive a Social Security benefit. The Employee Benefit Research Institute further states that 91 percent of retirees report Social Security is a source of retirement income, and 62 percent report it is a significant source of income.
Suppose you claim before reaching your full retirement age. In that case, the Social Security Administration will reduce your benefit amount. For example, if you were born in 1960 and retire at 62, you’ll get 70 percent of your monthly benefits. If you retire at 65, you’ll get 86.7 percent.
The full retirement age varies. For those born in 1955, it was 66 years and two months. For people born in 1960 or later, it gradually increases to 67. Benefits will be permanently reduced for the retiree if claimed before full retirement age. This age is when recipients can receive full benefits (or 100 percent of their calculated benefits).
Following legislative changes in 1983, the full retirement age began to increase, and benefits were designed to increase by 8 percent annually for those who delay collecting Social Security beyond their full retirement age. Recipients who wait until 70 to collect benefits are scheduled to receive 24 percent higher payments. Remember that you won’t receive any additional benefits by delaying past 70!
1. SSA.gov, 2024
2. SSA.gov, 2024
Retirement conundrum: Crippling health care costs or start dumping assets?
Investment News, January 23, 2025
Millions of Americans are facing a challenging decision about their retirement that could include spending-down their assets.
Research published this week reveals that 60% of investors who took part are considering whether reducing their assets to a level where they would qualify for Medicaid would be a better option than risking high long-term health care costs.
The survey from Jackson National Life Insurance Company found that almost two thirds of pre-retired respondents are underestimating both the cost and the likely requirement of health care in retirement.
They were at least $1,220 below the annual average estimated cost of $8,600; and while just 27% believe they will need long-term care in their lifetime, data from Morningstar in 2023 showed that this is a reality for 70% of those turning 65 each year. These two elements are exacerbated by previous Jackson research that showed most investors underestimate their life expectancy.
Meanwhile, two in five financial professionals who participated in the poll are concerned that clients will be unable to afford acceptable care, with 56% citing this as a major risk for retirees.
Added into the mix is the fact that new innovations in health care are adding to the potential cost in the years ahead. The research cites data showing a 120% increase in the price of medical care including services, insurance, drugs and equipment since 2000.
While spending-down assets to be eligible for Medicaid, the report highlights that many who would consider this dramatic route are unprepared for what that would mean for their retirement finances and lifestyle.
There is also the all-too-familiar gender inequality, with women more likely to have lower income and asset levels, but more likely to be caregivers for family members. They are less likely to believe they will need long-term care but expect to live longer than men.
“Retirement should be a time for security and stability, however, our research shows many households may be unprepared for the realities of the healthcare challenges and expenses they will face,” said Glen Franklin, Assistant Vice President of Research, RIA and Lead Generation Strategy for Jackson National Life Distributors LLC. “Our research is particularly timely given potential policy shifts resulting from the election outcome, as proposals addressing healthcare reform and federal funding for long-term care programs could significantly impact retirees’ healthcare costs and savings strategies. This further underscores the importance of working with financial professionals to prepare for an evolving landscape and proactively address healthcare risks in investors’ retirement plans."
The research was conducted in partnership with the Center for Retirement Research at Boston College.
“These new survey data should be a wakeup call for policymakers, financial professionals and older Americans themselves,” said Andrew Eschtruth, director of the center. “We are particularly concerned that too many people nearing or in retirement don’t have a good grasp of their potential healthcare needs and out-of-pocket costs, which could narrow their options when it comes time to pay the bills.”
Reach out to us at info@boardwalkcm.com to explore how to better prepare for these life events.