Aging with Dignity – and Dollars

Perhaps the two things most people avoid regularly thinking about are aging and financial planning. Aging is inevitable and does not require constant dwelling, but preparing for economic stability as we get older is a necessity – especially with a culture of ever-increasing health-care costs, diminishing and disappearing company-managed pensions and an uncertain future for Social Security benefits. Experts are adamant and vocal about how every person can and should prepare for the finances of aging as early as possible.

THE BASICS OF FINANCIAL PREPAREDNESS

Jim Gravgaard, investment officer for Essex Services in Glen Allen, says that one of the most common oversights when preparing for the future is not taking advantage of an employer’s retirement plan or not putting enough into the plan. According to a recent study by the Economic Policy Institute, 41 percent of retirees have no retirement savings.

“This puts a huge stress level on their Social Security income and what assets they have been able to save,” adds Gravgaard. Another financial challenge for older Americans is not paying off a mortgage by retirement age – this can be a huge draw on a person’s or couple’s income and/or savings. “Living longer may seem great, but usually complications with aging take a toll on finances as well,” he notes.

Health care is another major cost that often gets overlooked when financially planning for retirement. For instance, a study by HealthView Services concluded that a 65-year-old healthy couple could spend over $377,000 in retirement. “The alarming part of this study is that the over $300K does not include the cost of nursing homes, assisted living facilities, etc.,” says Gravgaard. For example, according to Genworth, the cost for a 70-year-old Richmond resident who receives long-term home care until age 79 is about $109,000; an assisted living facility is about $185,000; and a nursing home is about $369,000.

Although there are many ways to build wealth for one’s future, some of the best plans are the simplest. In order to accomplish this, Gravgaard offers the following advice:

• People should reduce their debt loads as quickly as possible – again, the biggest item to pay off first is the mortgage.
• Start putting money into employer retirement plans as quickly as possible and contribute to your employer’s match.
• Put off retirement later in order to help pay down debts and have the ability to save more.

“Building wealth is only part of the goal. Protecting it from loss or untimely spend-downs are just as important to retirees,” he adds.

ALTERNATIVE FUNDING OPTIONS

According to Chris Orestis, CEO of Life Care Funding, an often-overlooked financial asset for aging in general and long-term care in particular is a life insurance policy. He explains that many retirees stressfully contemplate the possibility of outliving their retirement savings. Such worry is directly related to the eventual need for long-term care if their health deteriorates. “This situation could potentially leave them and their families slammed with expenses far beyond what they can afford – but many people don’t realize that a life insurance policy can be converted to pay for assisted living, home care and all other forms of long-term care.”

Orestis provides the following key facts about how life insurance policies can be converted into a long-term care benefit plan:

• A long-term care benefit plan allows policyholders to use any form of life insurance policy to pay for long-term care. In essence, what was a death benefit that would have been paid to the person’s survivors becomes a “living benefit” that covers the expenses of the policyholder now.
• You can convert a life insurance policy to a long-term benefit plan at any time – you just cannot wait until you are about to move into a nursing home or assisted-living facility to buy long-term care insurance – at that point, it is too late.
• The value of the conversion is not limited to the cash value, but is based on the death benefit – that means the policyholder will receive a maximum amount of value toward their long-term care benefit plan.

Another less common consideration that may work well for some retirees is converting an IRA or 401(k) into a Roth IRA. Since most retirement savings accounts are based on an income tax deferral system, retirees are often hit with large federal taxes when the money is needed and withdrawn. Gary Marriage Jr., founder and CEO of Nature Coast Financial Advisors, explains, “When you defer taxes, eventually it catches up with you – suddenly your IRA or 401(k) isn’t worth as much as you thought because every withdrawal you make potentially can be taxed.”

He explains that traditional IRA and 401(k) accounts can be converted to a Roth IRA, which is not taxed when withdrawals are made. “That doesn’t mean you’ll avoid the taxes, because you’ll pay them when you make the conversion, but when you reach retirement, you’ll be able to make withdrawals the rest of your life tax free.”

Marriage makes three suggestions for those considering a Roth IRA: space out the conversion and transfer money over the course of a few years; covert to a Roth IRA between the ages of 59.5 and 74 to maximize your benefit; and start with a Roth 401(k) in the first place if your employer offers it.

THE EARLY BIRD …

Even though there are many options out there to help with providing a stable income during retirement, Gravgaard reiterates the common-sense solutions, like how important it is for people to start financially planning for their retirement as early as possible. “It starts with their first job – the younger you are the more risk you are able to take because your length of time to retire is longer than if you are in your 40s or 50s.”

However, he also warns that if you are too conservative with your retirement accounts, there is the risk that they will not appreciate quickly enough in order to build your retirement nest egg. Gravgaard concludes that it is very important to always seek advice from a professional, and he highly recommends consulting with a financial adviser to determine the best options in diversifying and planning for your retirement funding.

Christopher Cussat is a freelance writer whose features have appeared in dozens of regional and national publications. Christopher is also an adjunct professor of English for American Public University and American Military University. Cussat.com.