Most of our lives we are concerned with living in the moment–figuring out what we need to do today and how we might accomplish it. Sometimes, we can move beyond the moment, and think of our goals for the month, or even goals for the year. Many even benefit from going beyond that and establishing a five-year plan for major goals.
When it comes to retirement, it can be helpful to consider where we might be decades from now.
Many retirements now last 25-30 years! According to the Social Security Administration, men turning 65 this year will, on average, live to age 84.2, and women to age 86.8. About one in four of those who are now 65 will live to age 90, and one in ten to age 95. You may estimate your own life expectancy using the calculator found on the Social Security website.
Considering retirement in terms of decades can provide perspective and motivation to help accomplish big ticket bucket list items early, such as traveling to exotic places. However, it also brings up more challenging questions, such as:
- Am I going to run out of money?
- Who is going to take care of me as I age?
- Are nursing home costs going to prevent me from leaving an inheritance?
- How often should I update my will once I’m retired?
- How are my finances going to be handled if I am incapacitated over a long period of time?
The answers to these questions are personal and will vary from person to person. However, the financial planning tools and resources involved in answering these questions can be relevant to everyone.
Addressing healthcare and longevity costs in later life.
The first question people often ask regarding nursing homes is whether Medicare or supplemental medical insurance for retirees covers the cost of long-term care. Unfortunately, Medicare covers very limited, medically necessary skilled care or home health care, only if needed for an illness or injury and only if certain conditions are met.
However, individuals can purchase long-term care insurance, which can help pay for a nursing home stay. A description of the benefits can be found on our website. These policies can be quite expensive, because nursing homes are very expensive. Policy terms can lower the cost, such as longer “elimination periods” before benefits become payable. Just as you can’t increase your coverage after getting in a car accident, and just as life insurance premiums are cheaper earlier in life, starting a long-term care policy when you first retire can help ensure it’s more affordable and accessible later on if it’s needed.
It’s also possible that you or your parents may need additional help, but could get by with less than full time care in a nursing home. A less expensive option may be to employ an in-home caregiver, or someone who can help with daily chores such as doing laundry and cleaning. The vast majority of retirees want to stay in their homes as long as possible. Making upgrades to the home to provide additional accessibility (like a walk-in bathtub and handrails) may seem expensive at first, but is much more affordable compared to having an accident.
If longevity risk and running out of money are particularly worrisome to you or your spouse, additional options are available. For example, a qualified longevity annuity contract (QLAC) might be considered if you start planning decades ahead. The idea is that you purchase the annuity when you retire at age 65 or 70, and you receive no payments until later in life, such as age 85. At that point, you then have ongoing payments for the rest of your life. There are policies where heirs can receive the balance of the annuity cost if you pass early, and other policies provide for death benefit payment or cash cost payment, whichever is greater, if you choose to forfeit any remaining balance when you pass. The recent passage of the SECURE Act 2.0 increases the amount that could be converted from a 401(k) or IRA into a QLAC to $200,000.
Addressing how to delegate financial and healthcare decisions in later life.
It’s often the case that one spouse enjoys handling the finances, but, should that person pass on first, the surviving spouse is left to figure out what to do. Aside from passing on, becoming disabled or incapacitated also means one is unable to handle all those financial decisions they made before. If you don’t take action ahead of time, the court will name a guardian to handle your financial affairs. By delegating power and creating advance directives, you can help ensure your care is handled the way you wish.
People often think of an advance directive as the DNR order (do not resuscitate), but there is much more to it than that. One can appoint a medical power of attorney to be your health care proxy and make decisions regarding your healthcare if you are unable to. You can also create a durable power of attorney and designate someone to have authority over your financial matters. The scope can either be narrow or wide, based on what you spell out, such as the power to pay bills, collect debts, prepare tax returns, borrow funds, purchase insurance and fund a trust.
Whether or not you have a trusted person to delegate decisions to, a revocable living trust could be helpful. This arrangement offers comprehensive protection designed to last as long as it is needed. It is revocable, so changes can be made at any time, and it can even be canceled if the need arises. A trust helps alleviate the burden a spouse or child might feel should something happen to you. As an added bonus, trust officers have a fiduciary duty, by law, to put their client’s interests ahead of their own.
The trustee’s responsibilities may, if you wish, be limited to everyday investment chores and recordkeeping duties. If you become incapacitated, pass away, or upon your request, the trustee will assume full management of your assets, acting as you have directed in the trust agreement. In addition to handling your investments, the trustee’s responsibilities may be extremely wide-ranging. You may authorize your trustee to use trust funds to employ household help, hire nurses and even pay your monthly bills.
If a comprehensive plan seems appealing to you, please reach out to one of Arvest’s trust officers for a consultation.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
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Arvest Wealth Management does not offer tax or legal advice – consult licensed professionals for advice.