Many people get blindsided by the expenses they incur in retirement, and how fast they spend their nest egg. If you think about it, all during your working years, many people spent more money on Saturday than on any other day of the week. In retirement, you run the risk of living every day like it’s Saturday, and spending down your nest egg too fast. It’s important to keep a handle on your expenses, and have reasonable expectations of what they are. Here are some retirement needs you should be aware of:
Long-term care is the care that is provided for those suffering from long-term, chronic ailments that have little chance for improving. Examples include the personal assistance and custodial care that becomes necessary for victims of strokes, Alzheimer’s disease and other forms of dementia, and general frailty. Recent estimates peg the costs of a stay in a skilled nursing facility of upwards of $200 per day, and higher in some areas - or over $70,000 per year. This is enough to overwhelm a pension income and rapidly deplete a family’s savings. Medicare does not typically cover long term care beyond the first 100 days after a hospital stay. Medicaid does provide some basic coverage, but only after you spend yourself down to poverty levels, first. To hedge against a disastrous long term care medical event, you may consider purchasing long-term care insurance while you are young and while premiums are still relatively affordable. Expect to pay these premiums even after you retire, unless and until you go on claim.
You are automatically eligible for Medicare coverage, or basic hospital insurance, when you turn age 65. But this doesn’t mean health care is free. There are four parts to Medicare: Part A is hospital insurance, Part B covers lab fees and medical equipment, Part C, or Medicare Advantage, covers a managed care plan to administer and supplement your benefits, and Part D covers prescription drugs. Of these plans, only Part A is free to seniors, and even Part A requires substantial deductibles. Coverage is not comprehensive: You will be expected to cover a substantial part of your own medical costs, even under Medicaid. The other three parts of Medicare all require a monthly premium payment, though some programs exist to help those who are impoverished.
Social Security income is not necessarily income tax free. If you work while receiving Social Security benefits, or if you have other sources of taxable income, then up to half of your Social Security benefits in retirement may become taxable.
That term life insurance that seemed so cheap when you bought it won’t stay that way forever. Term insurance is priced to cover the mortality rates of people in your age group, plus provide a profit to the insurance company. The older you get, the higher your term insurance premiums will be. If your heirs require substantial liquidity at your death, even if you die well past life expectancy, you may consider purchasing a whole life insurance policy, effectively locking in your life insurance premium, no matter how long you may live.