Your Retirement … with Bob and Brian – Plan for medical needs in retirement

Published in the June 27 – July 10, 2018 issue of Gilroy Life

As more and more Americans progress through retirement years, they are likely to find themselves spending less money on certain aspects of living — for example, dining out, travel, and other forms of entertainment. Most will be long past saving for a house or for children’s college education.

In fact, many of life’s big-ticket expenditures will either be almost paid off or off the balance sheet altogether. There is one exception most are not prepared for completely: health care.

To better understand the concerns related to health care, you must understand why costs are accelerating at a rate that far exceeds inflation. Health insurance plan deductibles and out-of-pocket expenses will continue to rise.

With wages and salaries that do not keep up with the rate of health care inflation, many Americans are finding themselves unprepared for the drastically rising costs. In addition, diet and exercise are playing an important role in lengthening our life spans. The 2015 tables for valuation of life expectancy indicate that of healthy Americans aged 65 today, almost five in 10 men and six in 10 women will reach age 90. Chronic illness and end-of-life medical care expenses should be carefully planned.

Given that retirement can now last 30 years or more for older Americans, financial advisors should be carefully evaluating three core objectives:

1. Ensure clients have a predictable stream of money for daily needs.
2. Focus on achieving portfolio growth for long term needs.
3. Provide clients with enough flexibility so the plan can be refined to meet life changes in retirement.

There are many ways to create predictable income streams to secure a “foundation” in retirement years no longer funded by wages and salaries. Social Security is certainly a steady income stream but isn’t a lot of money relatively speaking.

Defined benefit pension plans have been a proven supplemental retirement income source for some, but with pensions on the decline, they are available to fewer workers leaving more Americans concerned.

For a portion of a person’s retirement portfolio, many have turned buying an income annuity to help bridge the income stream gap between what they can expect from pensions and social security.

Cash value life insurance is another financial planning tool that can be helpful in dampening the blows longevity and inflation can play on a portfolio in retirement years.

If you only take away one thing from our column, it should be that proper planning and asset allocation are more important than they have ever been.

Brian Harrigan and Bob Price own Executive Plan Design. Contact them at (408) 767-2881.