While many of us worry about similar things, some areas are of greater concern to certain age groups. In this article, we focus on some common financial concerns for retirees, most of which are centered on maintaining independence. A retiree's level of financial independence determines his or her ability to maintain autonomy in other areas, as well as maintaining dignity during any long-term illness.
Making Your Nest Egg Work Smarter and Longer
- Many retirees are concerned about whether they will outlive their savings, and in seeking ways to ensure that this does not occur, they look for savings and investment options that will produce income that is sufficient to cover their living expenses.
- With income usually limited to earnings on investments, retirees are often tempted to put their savings into vehicles that produce guaranteed rates of return. While these investments usually guarantee the principal and earnings, the rates of return are usually relatively low when compared with other investments.
- Unfortunately, there are some sales representatives that are more interested in meeting sales goals than matching clients with suitable products. As a result, investors are often locked into unsuitable investments and don't realize it until it's too late. For example, suppose you are persuaded to purchase a variable annuity because it includes a payout option for as long as you live. Depending on your situation, this investment may not be suitable because, in the event that you need to make early withdrawals or liquidate the annuity entirely, you may be charged large penalties.
- Make a list of questions that you want to ask before you meet with the financial-service provider and make note of the answers you receive. Where possible, ask for responses in writing from the representative.
- Conduct thorough research into the investment product in which you are interested and compare it with other investments. Information on generic financial products is available at a variety of websites, including the SEC's, the Financial Industry Regulatory Authority (FINRA)'s, and this one. However, financial institutions often add features and benefits to distinguish their products from those of competitors. Some will include features such as lower fees, higher interest rates, and a waiver of early withdrawal fees. This allows the consumer to choose the brand that best suits his or her needs.
- Work with a competent financial planner to design a portfolio that is balanced and risk-appropriate. Most financial professionals recommend investing more conservatively during retirement, but not to the point of losing out on opportunities that could produce more income while maintaining an appropriate level of risk.
Getting Affordable High-Quality Healthcare
- The older we get, the more likely it becomes that we will need medical attention. For retirees, the concern is whether they will be able to pay for good quality healthcare when they need it. After working for a lifetime, retirees want to know that their golden years will be just that – golden – and spending some of those years in a sub-par nursing facililty is sure to make the experience much more difficult to enjoy.
- Paying for private nursing home care can quickly wipe out a lifetime of savings.
- A retiree's ability to pay for the cost of in-home healthcare, adult day-care and nursing home expenses may determine the quality of healthcare the retiree can receive.
- Eligible retires may consider signing up for Medicare, which can be used to cover certain medical-related expenses. Medicare provides two types of insurance; hospital insurance for in-patient care and certain follow-up care, and medical insurance coverage for physician services that are not covered under the hospital insurance. The hospital insurance portion of Medicare is available at no additional cost, as it is paid for as part of an individual's Social Security taxes during employment. The medical portion of the insurance is available at a premium. Though it has its limitations, Medicare coverage often saves retirees a substantial amount of money.
- Retirees can look into whether it makes sense to purchase long-term care (LTC) insurance. Not only can LTC insurance be used to cover expenses incurred from long-term illnesses, but it may also allow the individual to choose where he or she receives the care, whether in a nursing home, an adult day-care center, or at home.
Becoming a Fraud Victim
- While everyone is at risk for fraud, retirees often face greater risks, as there is a growing number of scam artists who target the elderly. These criminals hope that the retiree is not only home most of the time, but home alone. This increases the likelihood of them being able to pitch a scam to a credulous listener.
- According to Consumer Action, "senior citizens aged 60 and older comprise 15% of the U.S. population, yet they are estimated to make up 30% – nearly one-third – of fraud victims." The North American Securities Administrators Association (NASAA) has dedicated an area of its website to exposing schemes designed to fleece senior citizens of their savings. Unfortunately, in many cases the losses are unrecoverable. Many of the individuals who prey on senior citizens portray themselves as investment professionals with the proper licenses. However, in many cases, they are unlicensed or lack the experience necessary to properly service investors.
- In many cases, retirees have paid unscrupulous contractors for work that was never done (or shoddily done), invested in Ponzi schemes and have been generally defrauded by individuals they believed they could trust.
- Sadly, family members, relatives and individuals who are supposed to be friends are also sometimes guilty of taking advantage of elderly retirees, using a power of attorney to conduct transactions that are not consistent with the retiree's goals and objectives, for example, or even taking funds for themselves.
- Avoid investments that seem too good to be true. Usually, they are. Retirees should also check into the background of an investment professional before agreeing to have that person manage their money. One resource is the NASAA, which hosts a Senior Investor Resource Center dedicated to educating seniors on how to protect their nest eggs. Information is also available at FINRA's and SEC's websites.
- Check into the background of other service providers, including contractors for home-improvement projects. This information is usually available on state, county, and Better Business Bureau websites.
- Ensure that more than one trusted relative or family member is kept abreast of relationships with investors and other service professionals. When family members or relatives are placed in charge of financial affairs, establish a structure in which they are required to provide frequent updates to a party that has only a professional interest in the retiree's affairs, such as an attorney.
The Bottom Line
The need to maintain independence leads us to make decisions on our own, instead of seeking assistance. This is a natural tendency, as most individuals do not want to be considered a burden to others. However, for individuals who prefer not to rely on family and friends, other resources should be used, such as those provided by the state and federal government, and industry groups. Making the right decisions and investing wisely can help to ensure that your nest egg is sufficient to finance your retirement and that you have the provisions in place to provide you with any healthcare services you may need.