Category: Medicare – Medicaid

The Fate of Social Security for Younger Workers – And Three Things You Should Do Right Now

We constantly hear people wonder whether Social Security will still be there when they retire.  The question comes not just from people in their 20’s, but also from people in their 40’s and 50’s as they begin to think more about retirement.  It’s a fair question.

Some estimates show that the Social Security Trust Fund will run out of money by 2034.  Medicare is in even worse shape, projected to run out of money by 2029.  That’s not all that far down the road.

So how do we plan for this?

The reality is that Social Security and Medicare benefits have been paid out of the U.S. Treasury’s “general fund” for decades.  The taxes collected for Social Security and Medicare all go into the general fund.  The idea that there is a special, separate fund for those programs is accounting fiction.  What is true is that the taxes collected for Social Security and Medicare are less than the amount being paid out.

What this inevitably means is that at some point the government may be forced to choose between increasing taxes for Social Security and Medicaid, reducing or altering benefits payments, or going broke.

Another question is whether the benefits provided to retirees under these programs will cover the cost living.  Older people spend much more on medical expenses than the young, and medical costs are increasing much faster than the cost of living adjustments in Social Security payments.  If a larger percentage of a retiree’s income from Social Security is spent on medical expenses, they will obviously have to make cuts in other expenses – be they food, clothing, or shelter – negatively impacting the lifestyle they envisioned for retirement.

The wise response to these issues is to save as much of your own money for retirement as possible while you are working.  There is little you can do about Social Security or Medicare benefits – outside of voting or running for public office – but you are in control over the amount you save and how you invest those savings.

As we face an uncertain future, we advocate that you take these three steps:

  1. Increase your savings rate.
  2. Prepare a retirement plan.
  3. Invest your retirement assets wisely.

If you need help with these steps, give us a call.  It’s what we do.

Getting Financial Help

When people have financial questions, what do they look for?  According to a recent survey most people are looking for someone with experience.  We want to take advice from people who are familiar with the issues we face and know what to do about them.  We all know people with experience, but financial problems, like medical problems, are personal.  Most people we know would rather not go into detail about their personal finances with family or friends.  They are more comfortable sitting down with a financial professional to discuss their finances, their debts, their financial concerns, and their financial goals in both the short and long term. Professionals will provide advice without being judgmental and are required by their code of ethics to keep your information confidential.

Once people find someone who has a track record of giving good, professional advice, they want personalized advice and “holistic” planning.

No two people have exactly the same problems.  A good financial advisor listens attentively to learn the goals, the concerns and personal history of the people who come to him for advice.

People have specific issues and questions.  For example: a couple, aged 39, is seeking advice about their path to retirement.  They give their financial advisor a laundry list of their assets, their investments, their savings rate, their debts, and the ages of their children and ask if they should be doing something different or are they on the right path.  That’s a very specific question and the advisor’s response is going to be personalized for them.

The plan that the advisor comes up with is going to involve much more than money.  It’s going to take their personal characteristics into account.  This includes personal experience with investing, their risk tolerance, and their closely held beliefs and ethical values.  This is what is referred to as “holistic” planning; taking personal characteristics into consideration.

There is a fairly big difference in the advice sought by

  • “Millennials” (those born after 1980 and the first generation to come of age in the current century),
  • “Generation X” (the children of the Baby Boomers) and the
  • “Baby Boomers” (children of the soldiers returning from World War 2)

“Millenials” say that among their top three concerns are saving for a large expense such as a car or a wedding.  Too many are saddled by debt acquired to pay for higher education and are finding that their degrees are not necessarily an entry into high paying professional jobs.  Their next largest concerns are saving for their kids’ education and putting money aside for retirement.

“Generation X” is primarily focused on saving for retirement.  They are married, own their own home and may have children in college.  Concerns two and three are tax reduction and paying for their children’s education.

“Baby Boomers” have finally reached retirement age.  More than a quarter million turn 65 each month.  As a group they are a large and wealthy generation, but a vast number have not saved enough for a comfortable retirement.  Many are forced to continue to work to supplement Social Security income.  Their number one concern is the cost of health care.  Concerns two and three are protecting their assets and having enough income for retirement.  The three concerns for Baby Boomers are inter-connected.  For many Boomers, Medicare helps them with the costs associated with most medical issues.  However, as people live longer, there comes a time when they are unable to care for themselves and live independently.  Long-term-care insurance was once believed to be the answer but insurance companies found that costs were much greater than anticipated.  The result is that many insurers have stopped offering the policies and those remaining have hiked premiums beyond the ability of many to pay.  The cost of long term care is so high that many Boomers are afraid that their savings will soon be exhausted if they are forced into assisted living facilities or nursing homes.

Each generation has its own problems and at a time when the world has gotten much more complicated.  Getting experienced, personalized and holistic financial advice is more important than ever.

8 Common Reasons for Retirement Failure

1. Overspending.

-You won’t spend less in retirement.  The old saw that retirees only spend 80% of their pre-retirement income is a myth.

2. Elder Fraud.

-Seniors are becoming the favored victims of swindlers.

3. Health care.

-As we age the cost of medical care goes up.  Medicare is covering less and premiums are going up.

4. Starting a business.

-Investing capital in a business that fails can devastate retirement finances.

5. Adult children.

-Helping your children through a “rough patch” can become is one of the most common ways of ending up broke.

6. Second homes.

-The cost of maintaining that vacation home when you’re no longer working can drain your resources when your income drops.

7. Divorce.

-Couples sometimes wait until the children leave home to divorce.  When assets are split 50/50, retirement becomes a problem for both parties.

8. Investment mistakes.

-Making poor investment choices is one of the most common ways of ruining your retirement lifestyle.

If you are nearing retirement, don’t enter into it without a plan.

Financial Planning in the Shadow of Dementia

Alzheimer’s, the most common form of dementia, is an epidemic. More than 5 million Americans are living with Alzheimer’s. It’s irreversible and fatal although some may linger for up to 20 years. And the number is expected to soar.

The Alzheimer’s Association has created a list of the 10 warning signs. These range from memory loss, through confusion to severe mood changes.

Because of the widespread nature of this disease, for people with Alzheimer’s and their families there are a number of things that should be done. Plans should be in place well before the onset of the symptoms.

• Review your insurance policies, especially your Long Term Care policies.
• Talk with your family and your financial advisor to make your wishes known.
• Review your wills and trusts.
• Appoint an advocate who has the legal authority to act on your behalf.
• Make sure you have provided for an appropriate Power of Attorney.

Research shows that declining financial skills is one of the first symptoms of the early stages of Alzheimer’s. This includes anything from difficulty in balancing a checkbook to being victimized by criminals who prey on the elderly. This usually leaves family members to take responsibility for the individual’s finances.

In some cases, people assume these responsibilities without having experience handling money or dealing with financial issues. This is the time to bring in a trusted financial advisor. We can provide practical guidance on both day-to-day and long-term financial decisions.

For a report on this subject, contact Korving & Company – the Financial Planning and Investment Management experts.

7 retirement planning myths debunked

If you ever plan to retire, you have to have a plan.  The days of depending on an employer pension and government benefits are rapidly disappearing and, especially if you are under 50, you are living in a  “yoyo” economy — short for “you’re on your own.”

There are a bunch of myths about retiring that need to be abandoned.

  •  It’s OK to postpone saving for retirement until other needs are taken care of.  Wrong.  There are always “other things” that interfere with saving for retirement and if you let them get in the way, you’ll never start.
  • Medicare will take care of almost all your health care needs.  In reality it will cover about half.
  • You’ll need far less income in retirement to maintain the same standard of living.  Only if you decide to become a hermit.
  • You can claim Social Security early and still get full benefits later.  Wrong.  When you begin taking benefits you are locked in (unless you pay it all back).
  • You should rely heavily on bonds rather than stocks as you get older.  Only if you plant to die soon and expect zero inflation.
  • Any retirement target-date fund will allow you to “set it and forget it.”  Target date funds vary widely in performance and there are no guarantees associated with them.
  • You’ll be able to make up a savings shortfall by retiring later or working part-time in retirement.  That’s a hope, not a plan.  You may not be physically able to work after retirement.   Because of the costs of benefits, many employers are reluctant to hire older workers.

A plan is needed, and needs to be constantly updated to keep you on the path to the kind of retirement that you want.

© 2021 Korving & Company, LLC