Kayla Thompson, Fall 2023 Intern at Next Bloom Wealth, recently surveyed individuals in the Kansas City Area regarding their primary retirement planning concerns. Survey participants ranged from 1-2 years away from retirement, 3-7 years away from retirement, and 8+ years from retirement. To identify common trends, participants were asked the same set of questions.
This is the first of a three-part series focusing on shared concerns for those 1-2 years away from retirement. For each set of common worries, Next Bloom Wealth provides education on potential ways to navigate them.
Participants shared a common concern for transitioning off of an employer-sponsored health plan to Medicare. Survey participants are concerned about the total cost for both Medicare and supplemental coverage, as well as out of pocket expenses during retirement. Survey participants know that as they age, they’ll seek more healthcare services. How much will those services cost?
Tackling Healthcare Concerns
Moving from an employer sponsored health plan to Medicare is a big change. Navigating supplemental plans, prescription drug coverage and expected out of pocket expenses as we age can be daunting. Next Bloom Wealth recommends speaking with an insurance broker and financial planner to review coverage options for healthcare.
Health Insurance Evaluation:
- Employer Coverage: Understand your current employer-sponsored health insurance coverage and how it will change after retirement. Some employers offer retiree health benefits, while others do not.
- Medicare Planning: Learn about Medicare, the federal health insurance program for individuals aged 65 and older. Enroll in Medicare on time to avoid potential penalties. Consider additional coverage through Medigap (Medicare supplement) or Medicare Advantage plans.
Budgeting for Healthcare Costs:
- Estimate Expenses: Project your healthcare expenses in retirement, including premiums, deductibles, copayments, and potential long-term care costs. Budget for these expenses in your retirement plan.
- Health Savings Accounts (HSAs): If you have an HSA, consider maximizing contributions before retirement. HSAs provide a tax-advantaged way to save for medical expenses, and funds can be used tax-free for qualified medical expenses in retirement.
Review and Adjust Coverage:
- Reassess Coverage Needs: As you age, your healthcare needs may change. Periodically review your health insurance coverage to ensure it aligns with your current health status and anticipated future needs.
- Prescription Medications: Understand your prescription drug coverage. Investigate ways to minimize costs, such as generic medications or prescription assistance programs.
Social Security Timeline
When it comes to taking Social Security benefits, participants shared common questions about the timing and impact of taking Social Security. Survey participants shared common concerns about taxes, when to start benefits, and how to synchronize benefits with a spouse.
Tackling Social Security
Consider Your Financial Needs:
- Assess Financial Situation: Evaluate your overall financial situation, including savings, investments, pensions, and other sources of income. If you have other sources of income, you may have more flexibility in deciding when to claim Social Security.
- Short-Term vs. Long-Term Needs: Consider your short-term and long-term financial needs. If you need income early in retirement, claiming benefits earlier may be necessary. If you can afford to delay, you may receive higher monthly benefits in the long run.
Health and Longevity:
- Assess Health: Consider your health and life expectancy. If you have concerns about your health or anticipate a shorter lifespan, claiming benefits earlier might be more advantageous.
- Longevity in Family: Consider the longevity of your family members. If your family has a history of longevity, delaying benefits may be a strategic choice to maximize lifetime benefits.
Social Security Optimization:
- Lifetime Benefit Value: The age at which you choose to start receiving Social Security benefits can significantly impact the amount you receive. You can claim benefits as early as age 62, but the longer you wait (up to age 70), the higher your monthly benefit will be.
- Reduced Benefits: If you choose to start receiving benefits before reaching full retirement age (FRA), your monthly benefit will be permanently reduced. This reduction is more significant the earlier you start claiming.
- Tax Implications: Social Security benefits can be subject to federal income tax, depending on your total income. Understanding the tax implications is important for accurate financial planning.
Do I have enough money to retire?
Survey participants shared a common concern over the amount of money accumulated for retirement. Most importantly, participants want to make sure they have the financial resources to maintain their current lifestyle and support new hobbies and travel during retirement.
Evaluate Your Current Financial Situation:
- Savings and Investments: Assess the amount you have saved in retirement accounts, such as 401(k)s, IRAs, and other investment accounts.
- Other Assets: Consider other assets, such as real estate, that can contribute to your retirement income.
- Debts: Take into account any outstanding debts, such as mortgages or loans, and consider how they may impact your retirement budget.
Determine Your Retirement Expenses:
- Living Expenses: Estimate your expected living expenses in retirement, including housing, utilities, groceries, and other daily costs.
- Healthcare Costs: Factor in potential healthcare costs, including insurance premiums, out-of-pocket expenses, and potential long-term care costs.
- Lifestyle and Leisure: Consider the lifestyle you want in retirement, including travel, hobbies, and other leisure activities.
Understand Your Expected Income Sources:
- Social Security: Determine your projected Social Security benefits based on your claiming strategy and anticipated retirement age.
- Pension Income: If you have a pension, understand the amount you will receive and the terms of the payout.
- Other Income: Consider other potential sources of income, such as part-time work, rental income, or investment returns.
Assess the Gap:
- Calculate the Shortfall: Compare your expected retirement expenses with your projected sources of income. Identify any potential shortfall between the two.
- Account for Inflation: Consider the impact of inflation on your future expenses. Ensure that your retirement income can keep pace with rising costs.
- Life Expectancy: Estimate your life expectancy and plan for the possibility of a longer retirement. Ensure that your savings and income can support you throughout your retirement years.
Retirement planning is a dynamic process, and it’s never too late to make adjustments to improve your financial readiness for retirement. A financial professional can assist you in developing a plan that aligns with your goals and helps ensure a comfortable and secure retirement. If you would like a retirement readiness checkup, click here on ‘start here.’
About the author: Kayla Thompson is a senior at Park Hill South High School and is participating in the Professional Studies Program as a Fall 2023 intern at Next Bloom Wealth. She plans to attend Kansas State University and major in Finance.
This article is for educational purposes only. For individualized advice, please contact a qualified financial planner or tax professional.