In the past, we’ve discussed how many Americans, by and large, are unprepared for retirement. Many Americans are woefully behind on the recommended retirement savings and bank on Social Security payments, the reality of likely having to work a part-time job after retiring and other factors to make ends meet. In this post, we’ll cover some assumptions that many Americans also make about their retirement years – assumptions that have the potential to derail their twilight years and their finances should they not properly prepare. Here’s a closer look:
1. Assume You’ll Spend Less
Many Americans incorrectly assume that they’ll spend less money during their retirement days. And while it’s true that they may spend less on certain things (i.e., maybe their house will be paid off), expenses on other things are likely to rise. For instance, many in their twilight years like to vacation, travel to a second home in the winter or spend more on entertainment to stay occupied. Without the requirement to work 40 hours a week, there’s a lot more time that retired Americans have on their hands. Unless you plan to spend your retirement years sitting around your home doing nothing, assuming you’ll spend less isn’t always a safe bet.
2. Assume Medicare is Free
Medicare is one of the most popular healthcare options for senior citizens, but like all healthcare plans these days, it’s not free. Medicare is broken down into several parts, and while certain aspects of it are without cost, others charge premiums. For instance, Medicare Parts B and D, which cover outpatient care and prescriptions, both come with a monthly premium. Even the other parts of Medicare come with deductibles. According to Fidelity Investments, which assesses senior citizen healthcare costs on an annual basis, senior citizens 65 years and older can expect to spend up to $150,000 on healthcare costs throughout retirement, as medical care becomes more necessary with age. That’s a healthy amount of money to budget. What’s more is that Medicare is in the midst of a funding crisis that elected officials will need to resolve to ensure the program’s long-term solvency.
3. Assume You Won’t Need Any Type of Long-Term Medical Care
To piggyback off the above point, the U.S. Department of Health and Human Services estimates that the average senior citizen has a 70 percent chance of needing some sort of long-term care. While it’s true that Medicare will cover any sort of care as a result of an injury, nursing home stays, assisted living stays, in-home health care and other longer-term services are usually not covered. Many retirees don’t save for these expenses, assuming if the time comes they can sell their home to afford the costs. But the reality is that their spouse may not require specialized care, making it a moot point. Furthermore, long-term care doesn’t always equate to permanent care. With long-term care costing upwards of $170,000, budgeting or securing some sort of long-term care insurance can behoove seniors.