6 Common Retirement Questions for Educators: Part 2

| May 8, 2017

2. HOW WILL I PAY FOR HEALTH CARE IN RETIREMENT?

Health care expenses are a major concern for today’s retirees, and those who aren’t planning ahead may find themselves in trouble down the road. With life expectancies rising, today’s retirees can expect to live well into their 80s. Combine longer life spans with rising medical costs — and the fact that health care expenses can skyrocket during a serious illness — and retirees have pressing needs to prepare for.

According to an AARP survey, in 2015, a couple retiring could expect to spend 67% of their lifetime Social Security benefits on out-of-pocket healthcare costs. And for people 65 and older, the average health savings account balance is only $5,016.

Not being adequately prepared for your healthcare expenses could greatly jeopardize your ability to retire comfortably. And those who retire earlier may need even more assets to cover their health care costs before they are eligible for Medicare. Fortunately, with adequate preparation and personalized strategies, you can help tame health care costs in retirement.

Everyone’s health care needs are different, which is why it’s important to consider factors like your age, health, and family medical history when estimating your potential expenses.

You should also determine whether you are eligible for any employer-sponsored health care once you retire. Any benefits you receive could reduce your out-of-pocket costs and, thus, the amount you need to save for medical expenses. In addition, retirement health care plan accounts like a Retiree Health Savings Plan may be available through your employer and can help provide a tax-advantaged way to save for future health care expenses.

For most retirees, Medicare will form the backbone of their health care plan. Medicare has gone through some significant changes due to the Affordable Care Act (ACA), and with a new presidential administration, there’s no way to predict how it may change in the future. A financial representative can help you stay abreast of details like eligibility, coverage, deductibles, and benefits.

It’s also important to think about how you will pay for services to help you remain independent if you need help with daily living. According to a 2016 Genworth study, having an in-home health aide for 44 hours each week costs an average of $46,332 per year, and the national average annual cost of a private room in a nursing home topped $92,376. Generally, Medicare and employer-sponsored insurance don’t cover long-term care. An investment representative can help you consider your current health, family medical history, and other factors — and help you evaluate your options for funding your long-term care needs.

3. WHAT SHOULD I KNOW ABOUT MY RETIREMENT PLAN?

Many different retirement plans exist, providing an array of options for creating retirement income that help you support your desired lifestyle. While the best way for us to answer your specific questions is to meet with you personally, we’ve developed a list of common retirement plan types and some specific concerns you may want to think about.

Defined-Benefit (DB) Plans are also known as “pension plans” and guarantee a lifetime retirement benefit to participants based on factors like age, years of employment, and salary. Though DB plans are disappearing, they are still common among public school systems across the United States. If you are enrolled in a DB plan, your employer takes care of investing all contributions to the pension fund and bears the risk of providing the guaranteed level of retirement benefits. Participants in DB plans have some special financial strategizing issues. Federal rules like the Windfall Elimination Provision (WEP) mean that your pension income may reduce your Social Security benefits, depending on the rules in your state. DB Plan participants may be able to choose among different retirement income options and schedules. Because of budgetary issues, some employers have sought to reduce or modify their responsibilities to pensioners. If you are concerned about possible reductions in your benefits, consult with your investment representative about strategies to help mitigate your risk.

Defined-Contribution (DC) Plans are the most popular type of employer-sponsored retirement plans available today. The most common types are 401(k)s, 403(b)s, 457s, and Thrift Savings Plans. As a plan participant, you decide how much to contribute to your plans from each paycheck, allocate your money between the investment choices available to the plan, and assume all investment risk. Often, your employer will match some of your contributions. Your money grows tax deferred since contributions are made with pre-tax income. Once you retire, you retain control over your assets and can choose to roll them over into an Individual Retirement Account (IRA) or other type of account.

Hybrid Retirement Plans combine features of both defined-benefit and defined-contribution plans. For example, your employer may offer a cash-balance plan that they contribute to as though it were a defined benefit plan — but employees have the option of receiving the retirement income either as a stream of payments or a lump-sum distribution. Lump sums are popular, because investors can roll them into an IRA or new retirement plan, allowing retirement savings to potentially continue growing.

Supplemental Retirement Plans are provided by some employers to allow you to save more for retirement beyond what’s contributed to your primary retirement plan.

No matter what type of retirement plan you have, a financial representative can help you evaluate your options and choose a strategy designed to maximize your retirement income while protecting your wealth.

Please look out for 6 Common Retirement Questions for Educators: Part 3 next week.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Bush Wealth Management and LPL Financial are separate entities.

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1 Comment on "6 Common Retirement Questions for Educators: Part 2"

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  1. This was an accurate article and informative. It’s important to be prepared for what’s ahead especially for health care. I work at a E & S Home Care Solutions and a lot of times we get clients who are unsure how to pay for home care services.