21st Century Retirement Solutions

21st Century Retirement Solutions provides information and tools for people who are anticipating financial issues such as longevity, risk to your lifestyle, family needs like survivorship, potentially large out of pocket healthcare expenses, and planning for your most important priorities in this life stage. Remember, your plan is no plan if you don’t give these issues some attention.

Retirement in the 21st Century is like a chess match with risk. Investment risk, chronic healthcare risk, longevity risk, global economic risk, etc. This is why we all need to be alert and realistic.

Some financial experts believe that longevity is the largest risk to retirement income and savings. Longevity can create a number of situations that put assets and income at risk of falling short. Simply put, there are consequences from living beyond your resources that are hard to anticipate. The only way to give yourself peace of mind is to have a good strategy to deal with the 4 major longevity events/concerns.

  • Income Security
  • Asset Depletion
  • Chronic Illness/Alzheimer’s
  • Long Term Care Needs

When the transition from accumulation to the income phase of savings takes place, planning for longevity is easier.

Savings and investments are going to turn into “salary replacement or your retirement paycheck.” This is a very new and different experience for most of us. There are many considerations; however we like to focus on the core or essential areas that require serious attention and planning.

  1. Generating “essential” income you need–for your entire lifespan
  2. Creating income to fund the lifestyle you want while you have the health to enjoy it.
  3. Identify resources to pay for the healthcare you might need.
  4. A plan to pay for Long Term Care (LTC)

These are the fundamentals that, given the right attention, can be the key to experiencing retirement security. Whatever your circumstances are, we have knowledge, research and planning that can help you.

A Common Retirement Denominator

Regardless of your economic status, if you are a U.S. citizen, worked 40 quarters and paid Social Security taxes, you qualify for Medicare and Social Security. These programs have been the foundation of retirement security for the past 50 years (80 years for SS).

A Key “To Do”: Know about your options on electing Social Security!

Note: If you and/or a spouse are determining when and how to elect social security benefits, make sure you have all the facts and have a reliable projection of what happens if you elect early or wait and take delayed retirement credits (DRC). These credits are currently at 8% per year of delay. Example: If you were to apply at age 66 (Full Retirement Age) but delayed benefits to age 70, your lifetime payment would be 32% greater! It is well worth taking the time to get an analysis; which we perform at Secure Retirement.

Withdrawals from Retirement Accounts (Savings)

Two income issues that require your attention:

  • “Sequence of Investment Returns”: carefully manage your investments a few years before and after retirement date.
  • “Burn Rate”:  rate of spending that will exhaust retirement assets used for income.

Burn Rate

Example: 

$1,000,000 of Savings
Annual IncomeExpected Time before Depletion
$50,00029 years, 8 months
$75,00016 years, 9 months
$100,00011 years, 9 months

Assumption for example:

  • After tax return 6%
  • Rate of Inflation 3%

This example emphasizes the need for good retirement income planning!

Sequence of Investment Returns

The order that your investment returns arrive each year when you are 35 or 40 years old doesn’t matter very much. You have time for your performance to average itself out. On the other hand, if you have large and/or successive losses in the years just prior or just after retiring it can alter your ability to produce your desired income. What this means is that the 5 or so years prior to your retirement date and the first few years after you retire requires vigilance to keep investments out of harm’s way. In fact, as counterintuitive as it sounds, we would prefer you take more risk much later in your retirement than in the period just before and after your retirement date. A harsh example of this risk was 2008-2009. Many people close to or early in retirement suffer severe financial repercussions.

Healthcare in Retirement and Long Term Care

Healthcare is expensive, especially at this life stage. Medicare brings on a new set of expenses to deal with. Many financial institutions have put forth estimates of what the cost will be for a new Medicare beneficiary when you add up all their premiums for Medicare Part B and D plus their supplemental insurance. When you add up all the out of pocket expenses; you’ve got a big number.

We ran an analysis of projected total healthcare costs for a couple close to retirement age. This report calculates the average lifetime cost of all premiums and out of pocket expenses as Medicare beneficiaries.

Sample projection: Spouse #1 age 62-M; Spouse #2 age 60-F

  • Life expectancy is 85 years old for each.
  • Total lifetime healthcare costs for both is $730,860 (#1 is $319,914; #2 is $410,946)

Inflation for services and premiums are factored.

Breakdown of costs

Hospital, Doctors, Test Premium (Medicare Part A and B) ........................................................................................................................

Prescription Drug Premiums (Medicare Part D) .........................................................................................................................................

Supplemental Insurance (Medigap) .............................................................................................................................................................

Out of Pocket Hospital, Doctors, Tests ........................................................................................................................................................

Out of Pocket Prescriptions ..........................................................................................................................................................................

Out of Pocket Vision and Hearing ................................................................................................................................................................


 

 

$208,172

$127,031

$230,455

$26,805

$29,805

$108,533


$730,860

 

This couple is earning over the $170,000 threshold for increased Part B premiums. An Income less than that threshold amount would reduce approximately $100,000 lifetime total.

 

 

Total Lifetime Cost

If you are new to Medicare, you would be well served to get familiar with how it works and what other insurance you will need. There are great resources available for these needs. If you would like some direction or ideas we can help you get proper information.

Long Term Care, Chronic Illness, and Dementia related diseases like Alzheimer’s are major considerations in any retirement plan. The expense related to these, not to mention the emotional and physical toll they take, is overwhelming for most families.

A study produced by Genworth each year provides some average costs by geographic area. For the California Bay Area, costs for 2014 on average are:

Assisted Living Facilities$48,000
Home Health Care$58,300
Skilled Nursing Home$94,700

These costs will likely continue to rise. Costs vary depending on the facility and /or home care providers used.

There are different options for paying these costs:

  • Out of pocket, use your assets
  • Long Term Care Insurance (LTC)
  • Home Equity (Reverse Mortgage)
  • Medi-Cal (financial qualification or spend down of assets)
  • VA nursing homes (for Veterans)
  • Life Insurance with a feature for LTC

There are creative ways to combine your resources as well. It is hard to almost impossible to figure out a strategy when you actually need care. Planning ahead for this possibility is a vital part of a retirement plan and having peace of mind about the future.

Secure Retirement is highly qualified to help you with this planning.

Summary

Major Considerations for Retirement in the 21st Century:

  1. The fundamentals of income security including a reliable stream of income for your essential needs should be looked at as far in advance of your need as possible. This provides more opportunities for creativity and to make adjustments .
  2. Your investments earmarked for retirement should be analyzed for risk. The few years before and after your retirement date are critical for your long term income and retirement accounts health.
  3. Healthcare will cost more than you anticipate. This should be accounted for when you are planning and forecasting.
  4. If you have not done any planning for long term care needs, your plan is not to have a plan. Face this reality now and involve your family if practical. Long Term Care is a family issue.

    This may sound elementary to a sophisticated investor or educated person. Our experience has been, along with thousands of other professionals, that taking care of these fundamentals the best way you can, is the most important part of retirement planning and makes a comfortable retirement with financial SECURITY possible. Secure Retirement is dedicated to helping everyone interested in achieving this standard.

About Richard

Richard began his financial services career as an advisor in the Monterey Bay region of California, where he used Efficient Set Theory to create and manage institutional investment portfolios.

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About Jeff

Jeff is a specialist in the field of retirement security planning, with over 30 years of experience in the financial services industry. A cornerstone of his philosophy is an emphasis on safe investing strategies.

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Contact Us

18 Crow Canyon Court, Suite 325
San Ramon, CA 94583
P: 925-855-4300
F: 925-855-4630
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