Retiree Confidence Is the Lowest in 15 Years! How You Can Plan Ahead for Retirement and Long-Term Care

About 10,000 Americans turn 65 every day, and though everyone’s financial situation is different, that means that millions of people are getting ready to retire each year. But according to a recent survey, many are not confident about how far their money will go! 

Results of the latest Retirement Confidence Survey by the Employee Benefit Research Institute and Greenwald Research show that Americans’ confidence in their retirement savings is waning as a result of inflation. In fact, Americans’ confidence in a comfortable retirement has dipped the most since the 2008 financial crisis, the study shows.  

What Workers and Retirees Are Concerned About 

The survey polled 2,537 retirees as well as workers. It seems that retirees have a more positive outlook about their prospects than those who were still in the workforce, with 73 percent of retirees feeling somewhat confident of living a comfortable retirement, down from 77 percent last year. Here are some of the other findings:  

  • Both workers and retirees expressed concern over declining retirement account balances.  
  • Forty percent of workers and 58 percent of retirees reported that their retirement account balances had declined over the past 12 months. 
  • Researchers believe that those numbers aren’t as high as they could be, given the steep losses in both stocks and bonds in 2022. The S&P 500 fell nearly 20 percent last year, and US bonds lost 13 percent. 
  • Among workers who expressed a lack of confidence, 29 percent cited inflation as the reason, while 40 percent cited having little to no savings. 
  • Inflation, which peaked last June at 9.1 percent but remains well above average at 5 percent, is a driving factor of this fear. About three in 10 workers and over four in 10 retirees cite it specifically as the crux of their anxiety. 
  • In March, prices on an index of all items tracked by the Bureau of Labor Statistics rose 5 percent from the same time last year.  
  • Gas prices are down over that time period, but food prices are up 8.5 percent and shelter expenses are up 8.2 percent.  
  • About 80 percent of survey respondents reported concern that prices would remain elevated for at least 12 months, while 75 percent worried that high inflation could tip the economy into a recession over the next year.  
  • Recession fears have intensified recently amid mixed corporate earnings reports, slowing economic growth, and expectations of further Fed tightening. 
  • Debt is a problem for 60 percent of workers and 35 percent of retirees — an issue worsened by inflation slowing payments and allowing interest to accrue. 
  • Many people have been pushed to stop saving for retirement altogether or even dip into their savings to pay everyday expenses. Savings balances have dipped since last year, with 40 percent of worker respondents and 58 percent of retirees reporting lower balances. 

How Are People Paying for Retirement? 

While there’s waning confidence in how far one’s money will go, people are generally feeling fine about their retirement plan choices and how they’ll pay for expenses once they stop working full-time. 

US government data shows the average retiree household spends $52,141 annually. Surveys show the average American expects they’ll need $1.25 million, in all, to retire comfortably. 

Given those amounts, according to the report, 70 percent of respondents were confident they chose the right retirement plan to fit their needs. Yet at the same time, most of the people were not completely knowledgeable about the options that are out there. Unsurprisingly, lots of people misunderstand where their retirement income will primarily come from. Working respondents tend to expect funds to stem largely from individual retirement accounts (IRAs), personal savings, jobs, or even family and friends.  

And almost all retired respondents cited Social Security as one source of retirement funds. As the Social Security Administration notes, nearly half of the program’s beneficiaries depend on Social Security for a majority of their income. 

Guidance for Those Planning for Retirement 

Those who plan for retirement well in advance are of course more confident when the time comes. Here are some things to keep in mind:  

Know Your Budget 

Do you know how much you spend on a regular basis? This is one of the main questions you should ask yourself before you enter retirement on a fixed income. 

  • Go through six months’ or a year’s worth of credit card and bank statements to determine how much you can expect your expenses to be in retirement. 
  • Consider what payments you’ll have coming in — Social Security, pension, IRA distributions, etc. — and make a plan for how you’re hoping to spend your time in retirement.  
  • To make sure you have enough money to do all those things you want to do, you may need to reevaluate. 
  • Think about what’s nonnegotiable (utility bills, property taxes, car insurance, etc.) and what could be reduced (eating out, shopping, streaming subscriptions). Ask yourself: Do you need to downsize? Should you relocate? Look into a part-time job? 

Make Sure You Have Enough Retirement Savings 

Ideally, you’ll be entering retirement with little or no debt, so prioritize paying down any balances. Once those bases are covered, maximize your contributions to retirement accounts.  

  • If you’re over age 50, you can save as much as $30,000 in a 401(k) or 403(b) and up to $7,500 in an individual retirement account (IRA) in 2023. 
  • Make sure your investment portfolio is properly diversified and aligned with your risk tolerance.  
  • You may want to speak with a financial advisor, such as myself, to double-check that you’re on the right track to reach your retirement goals. 
  • It’s also important to build an emergency fund. This is a rainy day fund that you can use to cover any unexpected costs that may arise such as car trouble, pet care, and home repairs, among other things.
  • Try to put away enough savings to cover six months of expenses, and make sure that cash is accessible. A high-yield savings account or money market account or no penalty CD may be a good place to put it, so you’re increasing your financial security and earning interest. There are five-year no penalty CDs right now paying close to 5 percent interest or more.  

Prioritize Your Health 

Health care can be a major expense in retirement. Fidelity estimates that the average 65-year-old couple will need about $315,000 in after-tax savings to pay medical bills in retirement. Please note that this does not include expenses to pay for long-term care, as long-term care expenses are considered to be a different expense from medical expenses. 

  • Before you retire, stay up-to-date with physicals and doctor’s appointments. Start thinking about ways to stay active and healthy in retirement, such as by joining a gym or trying a new sport. Physical and mental wellness is paramount. 
  • Make sure you understand your Medicare options and potential out-of-pocket costs. 

Plan for Long-Term Care Expenses 

Part of every good retirement plan, though overlooked by many financial planners and retirement planners, is being prepared to pay for the expenses of long-term care. According to the US Department of Health and Human Services’ Administration on Aging (AOA), at some point in our lives, about 60 percent of all Americans will need long-term care, meaning assistance with activities of daily living such as getting dressed, taking a shower, using the toilet, etc. That percentage goes up to 70 percent for people over the age of 65 and of course continues going up the older you get. Planning for long-term care needs and expenses is critical, but most people don’t understand what is covered by insurance, and even the government acknowledges that “people are often misinformed about what is covered by Medicare.” If you are a regular reader of our articles, hopefully you understand that Medicare does not cover one penny of long-term care expenses. Medicare, along with private insurance and Medicare supplement plans, only cover health care, and in our country long-term care is not considered a part of health care.  

Looking at the costs of long-term care, 2017 research from Price Waterhouse Coopers (PWC) found the average lifetime cost of long-term care was $172,000 (this equates to over $230,000 in 2023 assuming an average of 5 percent annual inflation for long-term care expenses). This number could include paid in-home care, living in an assisted living community, and/or living in a nursing home. But of course “averages” don’t ever reveal the true picture for any given individual. According to the PWC study: 25 percent of the time, long-term care lasts only eight months, and the cost of that care is only around $26,000 (around $35,000 inflation-adjusted for 2023); another 25 percent of the time, lifetime cost exceeds $240,000 (over $320,000 inflation-adjusted for 2023); in 8 percent of cases, care exceeds eight years, in which case costs can become astronomical; 7 percent of the time, long-term care costs exceed $500,000 (over $670,000 inflation-adjusted for 2023), and in 1 percent of cases, costs exceed $949,000 (around $1.3 million inflation-adjusted for 2023). 

The inflation-adjusted numbers above are based on the fact that the PWC study was done in 2017 and the cost of long-term care has gone up by approximately 5 percent every year since. According to Genworth’s Cost of Care Survey tool, in 2023, the average cost for long-term care in the DC Metro area, which includes Northern Virginia and suburban Maryland, is over $70,000 per year for in-home care, over $78,000 per year for care in an assisted living facility, and over $150,000 per year for care in a nursing home (in a semi-private room).  

How to Plan for Long-term Care Expenses 

As you can see, long-term care is catastrophically expensive! Those who plan in advance may have considered long-term care (LTC) insurance as an option to pay for long-term care. What many don’t realize is that the entire industry for traditional long-term care insurance (LTCI) has been shrinking for decades with premiums skyrocketing over the years. LTCI companies have been under increasing pressure from shareholders and market realities to end sales of traditional long-term care insurance, and most companies in this market have stopped offering sales of these traditional long-term care insurance policies altogether.   

What Are Hybrid Policies?   

Hybrid policies are a combination of either a life insurance policy or an annuity along with long-term care insurance. 

  • Hybrid policies are more popular than the older, traditional long-term care insurance “use it or lose it” policies.  
  • With hybrid policies, if you don’t ever need long-term care, then you don’t lose the coverage; instead, you can take withdrawals from the annuity to help you continue to pay your monthly expenses or, if that’s not needed, you will have a life insurance death benefit to go to your desired beneficiaries.  
  • Although the premium you pay for a hybrid policy will always be more expensive than the premium for a traditional long-term care insurance policy with a similar benefit, there are many advantages of hybrid long-term care insurance.  

Read more about the advantages of hybrid policies here. 

Consider a Living Trust Plus® Asset Protection Trust 

For many Americans over age 65, a Living Trust Plus® is the preferable form of estate planning because it includes asset protection for the person planning, and not just for that person’s children or other descendants. For purposes of Medicaid eligibility, this type of trust is the only type of self-settled asset protection trust that allows a settlor to retain control over the assets in the trust while also protecting the assets from being counted by Medicaid and by the Veterans Administration. 

The Living Trust Plus® irrevocable asset protection trust protects your assets from probate PLUS lawsuits PLUS Veteran’s Aid and Attendance benefits for wartime veterans (after three years), PLUS Medicaid eligibility (after five years), PLUS Medicaid estate recovery, all while being completely tax neutral, thereby preserving the lifetime capital gains exclusion upon the sale of the home inside the trust and preserving the step-up in basis upon death. 

Even though the trust is irrevocable, the term “irrevocable” does not mean that the trust is set in stone and cannot be changed. On the contrary, if you establish a Living Trust Plus® Asset Protection Trust, you can remain in control of the assets even though you are giving up ownership to the trust. 

Remaining in control means that you can change the trustees and change the beneficiary of the trust. Remaining in control also means, in most states, that you can serve as the trustee if you are still competent, which means that you can decide how the assets in the trust are invested, you can decide if and when to sell your family home, and you can decide whether and when to make distributions of trust financial assets from the trust to a named trust beneficiary (which cannot be you or your spouse) or to a charity of your choice, and you can decide the amount of any such distributions.  

Whether you’re rich, poor, or somewhere in between, you cannot afford to ignore the potentially devastating costs of nursing home care and other types of long-term care. 

If you’re a client or potential client who would like more information about the Living Trust Plus®, please call our office to make an appointment to learn more! 

Update Your Estate Plan Every Three to Five Years. Double-check your beneficiaries and speak with an estate planning attorney, such as myself, to make sure everything’s airtight. That way, you have peace of mind going into retirement. 

Planning for Retirement 

If you’re similar to many of the survey respondents and you’re worried about your retirement, the best thing you can do is to plan ahead! Whether your retirement is coming up soon or is many years away, it is important to protect your hard work and your golden years with effective retirement planning and long-term care financial planning. 

Besides being a Certified Elder Law Attorney, I am also an experienced retirement planning advisor and long-term care financial advisor through my affiliation with Protection Point Advisors. 

Retirement planners, such as myself, generally work with people ages 55 and older, who are within ten to twenty years or so of their desired retirement age. 

If you have not done your Estate Planning or Retirement Planning or had your Planning documents and Retirement Plan reviewed this year, please call us as soon as possible for an initial consultation or a free annual review for members of our Lifetime Protection Plan®: 

To get started on retirement planning, estate planning, or long-term care planning, please contact us to make an appointment for an initial consultation:  

Northern Virginia Retirement Planning: 703-691-1888      
Fredericksburg, VA Retirement Planning: 540-479-1435      
Rockville, MD Retirement Planning: 301-519-8041      
Annapolis, MD Retirement Planning: 410-216-0703      
Washington, DC Retirement Planning: 202-587-2797 

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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