Thursday, June 23, 2011
Worth While Read: 5 Biggest Retirement Myths
I've wanted to share some thoughts on the cost of aging for a while now and this Smart Money Magazine article is a good place to start as it mirrors some of my own thoughts on retirement/aging.
In Smart Money's 5 Biggest Retirement Myth articles, the author names these myths and I have followed each category with some notes of my own.
1. $1 Million Will be Enough
The article mentions that future retirees don't correctly estimate what they will need in retirement which is likely directly related to the following myth #2, that people spend less when they are older. When coupled with falling investment income and market fluctuation, that seemingly huge amount of money doesn't seem so big anymore. Furthermore, inflation on the basics makes it difficult to keep up. A paid off home still requires lights, gas, and water. Eating costs can easily double, especially if a special diet must be adhered to.
2. You'll Spend Less When You Are Older
If there is any myth that needs to go, this one is it. The article mentions exotic travel versus funding a grandchild's College Savings plan, both optional expenses, as well as rocketing entertainment and travel expenses.
Leaving aside the optional expenses, medical expenses are seriously underestimated in the planning stages. Life insurance may no longer be necessary, but the costs are replaced (exponentially) by long term care insurance. I'm continually struck by how much medical costs run even where health is relatively ok.
Many believe they will be able to stay in their (paid for) home, but find it is necessary to re-locate to a residence such as a condo or co-op. Fees and taxes alone can rival a mortgage in some places. People who have never spent a penny on cleaning services may now find that necessary. Ditto for lawn services or other personal services.
3. Older People Need More Bonds
4. You're Money Lasts Longer if You Move
In this section, the author talks about comparing all taxes (state income vs. sales tax vs. property tax). Additionally, not every retiree moves from an expensive area to an inexpensive one. The opposite might be more pragmatic ad that is something to consider. Quality of life factored in, some choose to follow their children to more expensive areas, or return to the expensive area because that is home.
Knowing a little bit about what nursing assistance can cost, having family close by and available to help could well be a more frugal choice over trading in more expensive digs for less expensive ones.
5. Uncle Sam Has Your Back
Medicare doesn't cover it all, necessitating supplemental insurance. Medicaid for nursing home care only sets in once you are properly impoverished. A spouse can retain some assets in addition to a home, but those assets need to cover housing, food, taxes, transportation, medical, etc. Long term care might alleviate some of the expense of nursing home care should that become necessary, but anyone have an idea of what nursing care runs even after insurance? And then there are still the expenses of the household.
More thoughts to follow I'm sure.