Perhaps you’ve seen the television ads where Harvard Professor and Social Psychologist Daniel Gilbert asks a group of people hanging around a plaza to mark how much money they think they will need when they retire on a piece of ribbon. An experiment follows where the people stretch their ribbon across a field marked with numbers and are shocked to realize their planned retirement savings will not get them as far as they imagined. Gilbert points out that retirement could last 30 years or more.
The average life expectancy in the US is 81.2 years for women, 76.4 years for men. Time can become a liability as modern medical technology allows people to live longer lives.
The ads use fear to sell a product, but they are a reminder that people need to think more like squirrels gathering acorns for the winter ahead and put more money away for retirement during prime working years. But how are we supposed to save when we have mortgages, kids’ college education to pay, and so many financial responsibilities to juggle? How can baby boomers counteract losses from the financial and housing crisis of 2008 and 2009?
Experts point to a few different options to make money go farther in retirement years so we can afford to live in an Assisted Living community when the time comes:
- Make Time an Ally Rather than a Predator – For someone approaching retirement age, options are limited short of winning the lottery (not a very reliable retirement plan). This is why it is so important for young adults entering the workforce to start making 401(k) contributions early so they can take advantage of the power of compound interest, illustrated in TV ads as a domino effect with tiny dominoes leading to a towering one with a loud thud at the end.
- Sacrifice – This would seem obvious, yet people often buy things they don’t really need because a surplus of discretionary cash is “burning a hole” in their pocket, as the saying goes. Successful retirement planning requires years of saving to provide for a time when we are no longer generating income from a steady job. It takes discipline and willpower to put money away rather than spend it for instant gratification. We benefit later by forgoing small luxuries today such as making lunch rather than eating out as often.
- Get a Handle on Debt – Older Americans tend to have more credit card debt than younger Americans. To have savings, it is critical to get ahead of debt. Paying the minimum each month adds a lot of interest on top of the original balance. A personal loan can consolidate the debt into a fixed monthly payment at a lower rate. Experts advise against dipping into tax-deferred money from retirement accounts to pay credit card debt due to penalties for taking out funds too early. Focus on paying down the card with the highest interest rate first, according to USAA Certified Financial Planner Scott Halliwell.
- Work While Retired – Some dream of the day when they can put a career in the rear view mirror, yet others miss having a sense of purpose, camaraderie and spending power that comes from a job. It’s great when “clocking in” is an option, but for some, it remains key to survival and a real challenge with limited opportunities as a result of age discrimination and a tight job market.
- Stay Active and Healthy – The Centers for Disease Control and Prevention stresses the importance of exercising, eating healthy foods and getting blood pressure and cholesterol checked regularly to reduce the burden of medical costs tied to lifestyle choices. The 10 leading causes of death (accounting for 74% of all deaths) are heart disease, cancer , chronic lower respiratory diseases, stroke, unintentional injuries, Alzheimer’s disease, diabetes, influenza and pneumonia, kidney disease, and suicide, according to the National Center for Health Statistics.
- Get Insurance – Medical bills and funeral expenses can lead to growing debt. Long-term Care Insurance may be needed to pay for costs not covered by health insurance, Medicare or Medicaid beyond a predetermined period. About 70% of people over age 65 will require at least some type of long-term care services during their lifetime.
- Get Expert Help – A financial advisor can help plan retirement in such a way that defers or saves tax burdens. Working with a “fiduciary” will guarantee you are advised by someone with a legal duty to act solely in your interest rather than someone who will sell you costly plans loaded with big commissions that may take a big bite out of your savings.
- Save More than You Think You’ll Need – Even if you’re confident that your savings will support you through retirement, don’t fail to anticipate emergencies like medical issues, natural disasters or a job loss that could strike.
- Don’t Rely on Social Security or Medicaid – By 2050, there will be fewer working people supporting retirees, according to US News & World Report. With one in six older Americans living below the poverty line, it’s a safe bet that the social safety net will be increasingly strained.
- Stay Flexible – When the time comes, seniors may need to consider financing their care by selling their homes, companion living, pursuing VA Aid and Attendance funds, getting reverse mortgages, or low interest bridge loans from lenders like Elder Life Financial.
In our February 2016 blog, we wrote about ways to get more out of retirement years on a limited budget. In the September 2015 blog, we covered long-term care options to pay for Assisted Living. We recommend reading those for greater detail on the actions recommended in this blog. These steps can help those seniors pay for care when they eventually need help with the basic personal tasks of everyday life in an Assisted Living Community like Regency.
Baby Boomers and millenials have special challenges as a result of the financial devastation of 2008-09, but the principles remain the same: Spend Less Than You Earn, Save Whenever Possible. With some discipline and luck, they ultimately may not have to endure a lower standard of living in retirement years.
We can put it off for years and years, but eventually, tomorrow becomes real. As we age, we want to travel the world and still leave something for our kids to inherit. At the very least, we want to be self-sufficient so we are not a burden on family. Planning ahead and continuing to save as we approach retirement can literally pay off in the long run.
To learn more about Regency Senior Living, call (615) 598-0245.
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