Retirement as we know it is broken! Nowadays, your “golden years” may be more like bronze years. Today’s retirees cannot rely on Social Security to be enough. Even worse, future retirees cannot rely on Social Security—period. In 2003, the Social Security board of trustees issued a news release stating, “Social Security is not sustainable for the long term.” According to a 2012 NPR report, the Social Security trust will not have enough money in 2033 to fully fund all benefits—scary to say the least.
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To make matters more complicated, people are living longer. Thirty years ago, it was uncommon to know someone over the age of 90. Today, we all know someone over that age. My own mother is 90 years old. At her 90th birthday party, there were a handful of my mom’s friends over age 90 and even two people over age 100. According to CNN, if you are a married couple over the age of 65, there is a 30.6% chance you will live to age 95.
All of this means we have to make sure we protect our retirement. No one else is going to. Here are three things you must consider:
Secret 1: Have a reason to wake up everyday. Sure, going fishing, golfing and playing tennis are great. But for most of us, there needs to be more. Maybe it’s a part-time job? Be sure to have a strong social network and support. Studies have shown social interaction has a positive effect on maintaining mental health and physical health. According to AARP, 70% of boomers continue to work in some capacity.
Secret 2: Make sure you don’t run out of money. Who’s better off? The brother that retired with $1,000,000 in the bank and no pension or the brother that has $150,000 in the bank and a pension of $30,000 per year? Maybe years ago it was about the “big number.”
With a shaky economy and next-to-nothing interest rates—how do we safely generate enough income from our savings even if you have the million bucks? It’s hard if not impossible! One option is to have a guaranteed stream of income from a fixed annuity and create your own pension. Today, that same 70-year-old brother with $1,000,000 in savings would need to set aside $500,000 to generate $30,000 a year guaranteed for life. Based on today’s rates, if he left the $1,000,000 in the bank, he would be lucky to get $15,000. Twice the money for only half the income—not smart.
Secret 3: Plan to protect your spouse if you need time in a nursing home or require home health care. According to Genworth Financial, the cost of a private room in a Massachusetts nursing home in 2012 is $127,750 per year. Who can afford that and not go broke? Our suggestion is that people should first have a solid estate plan that includes an updated will, power of attorney, and a health care proxy. People that are concerned about protecting their money and homes should also consider trusts. In addition to that, look at long-term care insurance. Today, there are many choices, from traditional long-term care insurance to which you pay annual premiums, to policies where you can put down a one-time payment and never pay another premium. If no benefits are paid out for nursing home care or home health care, the policy pays a tax-free death benefit to the named beneficiaries when the insured dies. There is also the “I changed my mind” factor. If you cancel the policy, you get all of your money back. This is good stuff.
About the author:
Sam Liang is the managing partner at his firm, Rubino and Liang, LLC, in the greater Boston area. Along with his partner, Richard Rubino, they host the radio program “Protecting Your Wealth Radio” on two of Boston’s largest talk radio stations, WBZ AM1030 and WRKO AM680. You can learn more about Sam Liang at www.justdontlosethemoney.com.