Regardless of the time you may spend planning for retirement, it’s possible that you may have at least a few misconceptions about being financially prepared for the stage of life when you no longer work. To make sure you stay on track, here is the truth about three retirement planning myths:
Myth 1: Retirees have adequate plans in place to manage their long-term care needs.
- Reality: Although many retirees are more aware of the high cost of long-term care than a few years ago, many are not taking action, believing they will be ok health-wise. They plan to depend on their savings or Medicare, or their children to care for them.
- Reality: A person turning age 65 today has a 70% chance of needing some type of long-term care during retirement, according to the U.S. Department of Health and Human Services (as of 10/2017).
- Reality: Long term care is expensive, with recent figures (10/2017) from the U.S. Department of Health and Human Services showing the national average monthly cost for a nursing home private room is $7,698, and an assisted living facility is $3,628. Your life savings can be spent quickly for such care.
- Reality: Medicare does not cover extended nursing home stays or non-skilled living assistance, which can make up a large portion of potential long-term care costs.
- Reality: Taking care of aging parents while also managing a career and/or providing for their own family can become a heavy task for your children. They may be able to provide help when it comes to those typical “activities of daily living”, such as meal preparation and dressing, but cognitive impairment issues such as Alzheimer’s and Dementia can often be hard for children to address on their own.
Myth 2: Estate planning can largely be achieved by a will, and by having beneficiaries listed properly on their retirement accounts.
- Reality: Wills should be reviewed at least every 5 years, or upon a significant change in your life. A simple will also may not be sufficient to meet the needs of your estate. Consider these questions: Have my beneficiaries changed? Are the executors listed still appropriate? Could recent tax law changes jeopardize or negatively impact things that are written in my will?
- Reality: Many people have their will in place, but often do not pay attention to the power of attorney (financial) and health directive (medical) that should accompany it. These two documents are critical components of the estate planning process.
- Reality: Estate planning, or reconciling an estate, can be difficult tasks if pre-planning is not properly done. I suggest retirees consider these questions, when it comes to what I refer to as “family planning”: Does my executor, or my children, know where to find my financial statements and documentation if something were to happen to me? Are all of my financial documents together in one place where they can access it? Do I update my financial documents once a year? Am I consolidating my assets in retirement to make things easier for myself and my beneficiaries?
Myth 3: A workplace 401k and pension plan does not need to be reviewed as often as my other financial accounts and assets.
- Reality: Asset allocation within your retirement and overall financial plan, especially as you grow older, needs to be reviewed on a periodic basis. Your risk tolerance is often evolving as you age, and these plans may need to be adjusted. Most retiree’s 401k plan and pension account are the foundation of their retirement plan.
- Reality: Target date funds are very prevalent in retirement plans right now. Take the time to look into how the plan’s funds are allocated, as many of them have gotten more aggressive in their investment strategies over the last few years, even if you are close to retirement.
- Reality: Work with a financial professional as you approach retirement to make decisions that have a positive outcome for you and your beneficiaries regarding your 401(k) and pension options. A retiree’s potential payout options within a pension plan is an example of such a decision.
Your community bank is a great resource to learn about planning for retirement. Our financial advisors can complete your personalized retirement income plan to give you new insight and ideas to help you pursue your retirement objectives. For more information or to set up an appointment, visit our website, call 866-224-1379 or visit any of our office locations.
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