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When to Retire or When Not to Retire

April 29, 2009 By Leave a Comment

Emily Brandon has an informative blog titled “Planning to Retire” on the US News & World Report web site. Her post today  is about her mother’s recent decision to retire.

She discusses the importance of employer-sponsored health care coverage and reminds her readers that Medicare is not available until you turn 65. In other words, if you retire at 64 you most likely will not have the employer-sponsored health care coverage that you had when you worked. Ms Brandon writes, “It’s also often worth it to try to keep your employer-sponsored health insurance until Medicare eligibility kicks in at 65. Less than a third of large companies provided retiree health benefits in 2008, according to a Kaiser Family Foundation survey, and only 4 percent of small firms offer them.”

The following HealthView example underscores the magnitude of health care expenses and the importance of employer-sponsored health care.

64-year old male who retires at 64 (one year before he is eligible for Medicare)
His annual medical expenses including premiums and out-of-pocket expenses = $6,160

64-year old male who is working at 64, and has employer-sponsored health care
His annual medical expenses including premiums and out-of-pocket expenses = $2,643

HealthView data is based on proprietary medical underwriting guidelines and an in-depth analysis of U.S. nationwide average health care costs. Calculations assume 64 year-old male is healthy. The working male has group coverage through his employer and pays 75% of premium.

Filed Under: Retirement

Plan for Medicare Costs with HealthView

April 28, 2009 By Leave a Comment

In Emily Brandon’s The Chicago Tribune article, “8 tips on paying for health care in retirement”, she offers the following 8 “tips on how to cope with health care expenses in retirement”:

1 Don't count on employer benefits
2 Try to make it to Medicare
3 Plan for Medicare costs
4 Consider working longer
5 Factor in long-term care
6 Consider long-term care insurance…carefully
7 Go it alone – treat your chronic conditions
8 Invest in your health

Number 3 on her list, plan for Medicare costs, is where HealthView can help. HealthView provides personalized information that individuals need to plan for their health care in retirement. This is important since health care costs in your retirement will most likely be your #1 or #2 greatest expense.

HealthView starts with a simple 3-part questionnaire with questions on your health status, lifestyle and history of medical conditions. This is a critical first step for planning. You will receive a HealthView Report that offers suggestions for decreasing health risks. Your report may identify areas of health concern or risk and provide suggestions for preventive actions as well as tips for maintaining and improving health. You will see in the HealthView Report that some risk factors can be controlled or changed.  Others cannot. For example, lifestyle can have a great impact on your risk for developing cancer. Studies have shown that making healthy choices can potentially prevent over 50% of new cancer cases in the country.

Your HealthView Report includes the impact of your health and your health risks on your life expectancy and future healthcare expenses. It provides projected out-of-pocket healthcare expenses based on your medical coverage and age of retirement.

Your HealthView Report will help you and your financial advisor determine what you need to invest today to fund your health-care costs during retirement. HealthView also provides interactive tools that allow for “what-if” scenarios. For example, how will a change in your year of retirement affect your out-of-pocket health-care costs?

HealthView provides financial advisors and their clients with the information needed so that you can prepare and plan to have the funds needed to cover the most important expense you will have in retirement.

Filed Under: Medicare, Retirement

The Impact of Health Care Expenses on Your Retirement Budget

April 23, 2009 By Leave a Comment

In order to understand the overwhelming impact of health care expenses in retirement, it makes sense to analyze health care expenses in relation to a basic retirement household budget.

Let’s revisit John and Mary, a healthy 57-year old couple who plan to retire at 67. Even though they will be fully insured (Medicare A,B,D and Medicare Supplement), they will need a total of $322,699 at the point of retirement, compounded at 5% per year, to cover their total out-of-pocket health care expenses of approximately $587,000 during retirement.

John and Mary have decided that while in retirement they will maintain living expenses of less than $30,000 a year. A key point to consider is that statistically over 50% of retirees spend more money in retirement than they did while in the workforce. But, John and Mary are confident that they can live comfortably on a $29,400 budget.

Here is a breakdown of their expected monthly retirement budget:
$800 on Mortgage and Taxes
$200 on Auto
$200 on Insurance Premiums
$500 on Food
$500 on Food and Utilities
$250 on Other Expenses
Total Monthly Expenses are $2,450
Total Annual Expenses are $29,400

Let’s look at the financial impact of this frugal budget in retirement. In year one of retirement, that $29,400 annual household budget will actually be $40,677 based on a 3.2% inflation rate. In addition, they will be spending $9,570 on their medical expenses for a total expected budget of $50,247. That is over a 70% increase in what John and Mary planned to spend in their first year of retirement.

By the time they are both 75 years old, the household budget will grow to $52,741 and health care expenses will be $21,480 for a total budget of $74,221. And remember, John and Mary have not taken a vacation and I did not account for cable TV or taxes!

The moral of the story is that if you can save more, do it today. If you are within 15 years of retirement, meet with a financial advisor, develop a plan and work it. Planning today will pay off in the home stretch.

Filed Under: Healthcare, Investing, Retirement

Sixty seven is the New 65

April 20, 2009 By Leave a Comment

Sixty five is no longer the default retirement age. Many people plan to work beyond their retirement years because we are living longer healthier lives. In addition, many are concerned about not being financially prepared to retire.

 

Another reason 65 is no longer the default retirement age is because Social Security implemented a phased increase in the normal retirement age from 65 to 67. According to the Social Security web site,

Full retirement age (also called "normal retirement age") had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959.

Do you know when you will you reach your normal retirement age?

Enter your date of birth in the simple tool on the Social Security web site and it will compute the month and year that you will reach your normal retirement age.

 

You can begin receiving Social Security benefits before your full retirement age. However, if you retire early, your Social Security benefit will be less than if you wait until your full retirement age. You can read more details here.

 

Don’t feel bad if you did not know that 67 is the new 65. You are not alone. Most people are unaware of the phased increase in the normal retirement age from 65 to 67. According to the 2006 Retirement Confidence Survey, sponsored by the nonpartisan Employee Benefit Research Institute(EBRI), "Only 19% of current workers were able to give the correct age at which they will be eligible for unreduced benefits."

Filed Under: Medicare, Retirement

Americans do not Feel Prepared to Retire

April 15, 2009 By Leave a Comment

   Worried_about-retirement  

The Employee Benefit Research Institute(EBRI) released their 19th Annual Retirement Confidence Survey yesterday. The percentage of Americans that feel confident about their upcoming retirements continues to decline. Here are some of the key findings of this year’s survey:

13% of Americans are very confident that they will have enough money to live comfortably in retirement. This is down from down 27% in 2007.

20% of current retirees are very confident that they have a financially secure retirement. This is down from 41% in 2007.

13% of Americans feel very confident about having enough to pay for medical expenses in retirement. This is down from 20% in 2007.

I find the following information, that the survey found, very interesting:

Many workers still do not have a good idea of how much they need to save for retirement. Only 44 percent of workers report they and/or their spouse have tried to calculate how much money they will need to have saved by the time they retire—and an equal proportion (44 percent) simply guess at how much they will need for a comfortable retirement.

The good news is that you can plan for your retirement needs, and there are all kinds of resources available to you – from free financial calculators on the Web to sitting down with a financial advisor. I suggest you get started by creating a budget for your retirement years. You should also learn about the impact that your health care expenses will have on your lifestyle in retirement.

A financial advisor can work with you to put a plan together that will help you prepare financially. It is critical that you know where you stand financially, and what your future financial needs will be in order to properly prepare.

Filed Under: Retirement

Forget the Grand Slam

April 3, 2009 By Leave a Comment

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I was invited to speak at the UBS Global Healthcare Conference last year. I presented a portfolio designed for boomers in transition (about to retire or recently retired). The portfolio consisted of

30% cash
25% fixed income
45% equity

The point I emphasized is that boomers preparing to retire can not be over weighted in equity because of the potential impact of a bear market. We, unlike our kids, will not have a significant period of time to recover from a bear market.

Consider the following example:

What is the impact on a portfolio with a three year goal of 10% compounded annually if the portfolio gets hit with a down market in year two?
Lets say that she achieves her year one return goal of 10% but the year two return is a negative 10%.
What will this investor need as a year three return in order to hit that goal of 10% compounded annually?
The answer is around 35%!
Moral of the story: when it comes to investing, you must first and foremost protect yourself from the impact of a bear market.

I analyzed the market from 1997 to 2007. This ten year period of time included both up and down markets. A portfolio with a mix of 30% cash, 25% fixed income and 45% diversified equity positions beat the 100% equity portfolio for that time period.

Not only would that portfolio have outperformed a 100% stock portfolio, but the overall risk of that portfolio would obviously been far less than the all-equity portfolio. Here are the results broken down for the 10 year period.

Performance

Based on these results, why would you ignore cash equivalents? Of course, if we add 2008 to the mix, the cash heavy portfolio would have beaten the market by an even greater margin.

Too many baby boomers were far over weighted in stocks during this entire bear market.  Think about the benefits of having 50% to 90% of your portfolio in cash and fixed income this past year. I recommend that you and your financial advisor discuss the percentage of your portfolio that should be in cash and fixed income based on your personal risk tolerance level.

Since the market is down around 50% from its high in 2007, should we boomers still keep 50% or more in cash and fixed income? The answer is absolutely yes! Since no one knows if we have seen the bottom of this bear market, I know that I cannot afford to lose another 20% to 30% of my savings. And, I’m willing to give up some of the upside to ensure that I protect the potential downside.

So I leave you with one key investment recommendation. Forget about hitting a grand slam with your portfolio and protect yourself from a major future downturn in the market.

Filed Under: Investing, Retirement

Importance of Cash

April 2, 2009 By Leave a Comment

HealthView's business and our blog focus on health care costs in retirement, and how investors can plan to cover their upcoming health care costs. But retirement is not just about health care. I plan to enjoy my retirement with time with family and friends, rounds of golf, and vacations.

If you are over 50 like me, you need a game plan that will allow you to live the lifestyle you desire in retirement. We baby boomers cannot afford to experience the significant losses associated with the current bear market again prior to or during our upcoming retirements.

The most important aspect of a solid investment plan is to protect your portfolio from significant losses. Too many investors ignore this investment logic and chase elusive returns.

You have probably heard that asset allocation is the foundation of a sound investment program. This is true. But so many investors ignore a key asset category – cash equivalents, which include CD’s and money markets. Most asset allocation portfolios typically hold approximately 5% in cash equivalents while the remainder of the portfolio is invested in fixed income (bonds) and equity (stocks). The more conservative the portfolio, the more fixed income it will hold.

Nassim Nicholas Taleb, the author of the best seller The Black Swan is a proponent of maintaining high cash positions in a retirement portfolio. Taleb was interviewed earlier this week on CNBC’s Squawk Box – you can watch it here – where he emphasized the benefits of “cash as an investment.”

I agree with Taleb that cash must play an important investment role for baby boomers, but unlike Taleb, I believe in a diversified portfolio that includes appropriate levels of stocks and bonds.

Check back tomorrow when I share a portfolio that I presented at the UBS Global Healthcare Conference last year.

The portfolio, designed for baby boomers, includes a 30% investment in cash.

 

Filed Under: Investing, Retirement