(Writing) A Retirement Reality Check

Are you scared of retirement?

Well, if you are, you have some company. And, at least according to one of those click-bait survey headlines, 40% of some 800 individuals surveyed claim to be more afraid of retirement than … death. And more than half—52%—of those younger than 39 claim the same.

Now, as silly as that seems, could those survey respondents simply be more ready to meet their maker than most? Now, as it turns out, they have some pretty concrete concerns about retirement—or more specifically what they are afraid they will lose; things like income and employment-based healthcare benefits. So, they aren’t scared of retirement, per se—but of the things they fear they will lose because of retirement.[i] 

I get it. Anyone who has changed jobs, a home, even a boss—can appreciate a certain level of anxiety around the unknown—even when it’s a result of your choice. And when it’s not?       

Despite that level of concern, this is a group in which two-thirds (68%) think that Social Security will be enough to live on—even though 4 in 10 admit they don’t know how much they will get from Social Security. And even though solid majorities expect those benefits to be reduced, and that the minimum age to collect those benefits will increase by the time they retire (which, arguably, is another form of benefit reduction).

I know. None of this makes sense. It’s been said that ignorance is bliss—but clearly that doesn’t apply to retirement awareness. But if there’s anything scarier than the reality of retirement,[ii] it surely must be the fear of trying to figure out what you need for retirement—if you even know how to start.

So, for those worried about where post-retirement income—and health insurance—is going to come from, let me offer up the following as a starting point in a retirement reality “check.”

First stop: Social Security 

If you haven’t set up an account there, you should—today. It’s an easy way to guard against identify theft, get a replacement Social Security card—and get estimates of your and your spouse’s estimated benefits. 

And once you are receiving benefits, it’s a pretty handy way to change your address and set up or change to direct deposit.

In all likelihood, Social Security alone won’t be “enough” (it wasn’t designed to be)—but it’s a regular source of retirement income, and it’s adjusted for inflation. In that sense, it stands to be a solid foundation for a retirement income budget. 

Second stop: Medicare

Trust me, you don’t want to mess this one up. You need to sign up as soon as you’re eligible (age 65 for most), whether or not you plan on claiming then. 

For most, Medicare will be the post-retirement health plan. In my personal experience, the coverage is pretty good—and it’s likely that most will find more options to choose from than in a corporate benefits setting. That said, the premiums are based on income[iii]—and that’s something to keep an eye on as those pre-tax savings (which will be taxed as income) are withdrawn.

There are two “core” parts to Medicare; what are affectionately referred to as Part A (hospital coverage)—which is “free” (in that your historical payroll deductions fund it) and Part B (medical insurance, which covers outpatient care, services from doctors and health care providers, some preventative services)—which, like your current health insurance, has premiums that you have to pay. More on that in a minute.

While certainly of benefit, those coverages won’t replace everything covered by the health insurance most have pre-retirement. Those are likely included in what are called Part C (vision, hearing, dental, and Part D (prescription drug coverage). And, generally speaking, those premiums are deducted from your Social Security benefit.

The bottom line here is that your post-retirement spending plans need to include something for health insurance (more precisely, your Social Security benefit will be reduced by that amount). You can find out more at: https://www.medicare.gov/basics/costs/medicare-costs

What’s Next?

This is, of course, just a starting point—baseline income and health insurance. These then need to be compared to post-retirement income needs/expenses. And then it’s important consider other sources of potential income, things like:

• pension/partial pension from employment (particularly ex-employers, where you may be entitled to a benefit);
• workplace savings plans (like a 401(k) or 403(b) plan), particularly since there are likely multiple plans where you had, and perhaps still have, a balance; and
• IRAs (which may include rollovers from those workplace savings plans). 

All in all, it’s important to have a reality check on retirement—so that you know you’ll be able to still write those checks—in retirement—for real.

 - Nevin E. Adams, JD

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[i] That also includes things like not keeping mentally active, not keeping physically active and/or not having social networks at/from work.

[ii] As has been noted before, those IN retirement seem to be feeling pretty good about things. See Retirement Confidence Bounces Back…Some. 

[iii] See The Biggest Surprise About (My) Retirement.