3 Challenges to Retirement Security Success
Americans today are woefully unprepared for retirement. A 2016 study by the Economic Policy Institute showed that around half of Americans do not have a retirement plan at all and have absolutely nothing saved for retirement. This paycheck to paycheck lifestyle is but one of many challenges to retirement security. In the following, we will examine three of the top challenges to retirement security and offer possible solutions in an effort to draw back, even a few, from the precipice of retirement disaster.
Meeting Healthcare and LTC Costs in Retirement
Let’s face it, rising healthcare costs are a fact of life. The question is, how do we afford healthcare costs and/or long-term care costs during retirement?
Did you know that the average cost for home health care in the U.S. is over $50,000 per year? Worse yet, the average annual cost of nursing home care in the U.S. is over $90,000 per year. Costs like these may seem out of reach, but with the proper plan in place, paying for healthcare and long-term care is doable.
>> RELATED – Long Term Care Costs and How to Pay for Them
>> RELATED – Rising Healthcare Costs Draining Retirement Savings
The Pension Protection Act (PPA) of 2006 paved the road for individuals to be able to protect their retirement accounts from the skyrocketing costs of long-term care. The plans created by the PPA utilize an “asset-based” life insurance product that allows you to transfer money from a retirement account into a new asset class that helps pay for long-term care. What’s more, this new asset class could actually generate up to nine times your money in tax-free benefits that pay for LTC.
To learn more about the Pension Protection Act and long-term care, please see the related articles above or click the banner to request a quote.
Relying Solely on Social Security in Retirement
When Social Security was established, the average life expectancy for men was 58 and 62 for women, yet the retirement age was set at 62 to draw benefits from the Social Security system. Obviously, the federal government was not expecting many people to use the system.
Today, the average life expectancy for men has risen to 76 and to 81 for women, yet the retirement age for Social Security benefits has not risen significantly since its inception. Currently, the age to receive full benefits is 65 for those born before 1943, 66 for those born in 1943-1954, and the retirement age to receive full benefits gradually increases until it reaches 67 for people born after 1959. Today, there are over 57 million people in the U.S. receiving Social Security benefits. According to a Newsmax article by noted economist, David Stockman, it is estimated that Social Security may run dry in about 12 years. While there are many that dispute that timeline, relying solely on Social Security for your retirement income is risky at best.
One thing you might consider as an income stream in retirement is a fixed index annuity. A fixed index annuity is a contract between you and an insurance company where you pay a premium or series of payments in exchange for return payments beginning at a predetermined date in the future.
>> RELATED – About Annuities – 7 Things You Need to Know
>> RELATED – Is an annuity right for me?
>> RELATED – Nationwide New Heights® Fixed Indexed Annuities
When an annuity is first established, there are many options to choose from. Therefore, we would highly recommend that you consult with a specialist in annuity options to choose the best options available for your specific needs.
Not Participating in a 401(k) Plan
Almost half of Americans do not participate in any type of a retirement plan such as a 401(k). This is usually because of one of two reasons – 1) the company where a person works doesn’t offer one or 2) because a person doesn’t think he/she can afford to contribute to a 401(k). Let’s just say, if you are not contributing to a 401(k), it’s like throwing away money.
Most companies that offer 401(k) plans also offer some sort of matching funds as well. Therefore, it is wise to contribute as much as possible to a 401(k) plan and take advantage of the company matching.
For those that think they cannot afford to contribute to a 401(k), you might consider the tax implications of your contributions. In addition to company matching, there is an added incentive to contributing to a 401(k) in that the contributions are tax-deferred. Money put into a 401(k) lowers your taxable income, thus reducing the amount of taxes you pay to the government. With this in mind, you may actually bring home close to the same amount each paycheck by reducing your taxable income and at the same time, start building your retirement savings.
For those who work at companies that do not offer a 401(k) plan, there are other options you might consider. The most common alternative to a 401(k) is an IRA. You can easily set up an IRA at a financial institution such as a bank, insurance broker, or a mutual fund company.
>> RELATED – In-Service Withdrawals from 401(k) Plans – The Basics
>> RELATED – Understanding Retirement Income Plans
If you have a 401(k) available to you, we would strongly recommend that you sign up for that plan and start contributions as soon as possible. If one is not available, we would suggest that you set up an IRA yourself and start contributions as soon as possible. Even if you start with contributions as low as 1% of your salary, it will still make a difference in the years to come. However, if you are able to contribute more, we would recommend that you max out your contributions to your 401(k) and/or IRA.
One final word of advice – seek out a retirement planning professional. A good retirement plan should evolve with the times to meet the challenges of today AND tomorrow.
Disclosure: Links to third-party websites are provided as a convenience. DeWitt & Dunn does not endorse nor support the content of third-party sites. By clicking on a third-party link, you will leave this website where privacy and security policies may differ from those practiced by DeWitt & Dunn.
Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated. A fixed annuity is intended for retirement or other long-term needs. It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. A fixed or indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index.
Not associated with or endorsed by the Social Security Administration or any other government agency.