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February
Saving for Retirement: What's Enough?
According to the Federal Reserve, nearly half of households with members between 50 and 64 years of age have less than $10,000 in retirement savings. If you're in this group, you'll likely need more, but how much is enough? Experts at Fidelity Investments urge its clients to save 10 times their income by the time they are aged 67. This means that if you have an annual income of $60,000, you will need to have $600,000 saved. This is just a guideline. If you have a pension, for example, the math is different.
But if you fall short of that number, do not despair. As a matter of fact, some 45% of baby boomers claim they are up at night worrying about outliving their retirement funds. This may not be far-fetched, as the average baby boomer has saved only $144,000. Happily, there are still steps you can take to head in the right direction financially that will help you sleep better at night. Here are a few pro tips to get you started:
- If you have not retired yet, create a detailed budget that includes all the essential and discretionary expenses you expect to have in retirement. You may want to include some possible unexpected expenses such as medical care, family obligations, home and car maintenance, or investment losses. Consider where you want to live and how much income you will need to support that lifestyle. If the budget isn't balanced, review the list of expenses to see where you can cut back. At this preretirement stage, there are still ways to increase income, starting with getting a second part-time job. You will also want to look at your current expenses and see where you can cut down on spending. Financial pros advise waiting two weeks before buying anything unessential to see if you still want it.
- If you are already in your 60s, you may want to put off retirement for a few more years. Bringing in more income allows you to set aside more money for retirement to improve your financial situation.
- You may want to also postpone collecting Social Security benefits until you are age 70. For every year you do not collect past age 62, the age of eligibility, you receive an increase of 8%. If you are relying on Social Security as your main source of income, you will need to manage it very carefully to cover your monthly expenses.
- If you are a homeowner, do not discount your home's status as an asset. You may find that over time your home has become too large for your needs and that downsizing is the way to go. You can sell your home and take some of the proceeds to purchase a more affordable home and place the rest in savings. If you choose to stay in your home, consider taking in a renter to share the space and generate income.
Retirement should be the hard-earned reward for a lifetime of working, not a time of financial struggle. The sooner you start saving and planning for retirement the better. And be sure to get professional guidance.
January
Advantage Plans Can Mislead and Bamboozle
Retirees must be vigilant in selecting an Advantage Plan and tuning out the marketing hype. Choosing an inappropriate plan can lead seniors to waste precious funds and/or end up with lower-quality healthcare. Moreover, confusion and inertia may discourage them from undoing the wrong plan.
Muddy waters
Just the number and complexity of Advantage plans are overwhelming. During the autumn of 2022, over 240,000 commercials flooded TV airwaves. Every fall enrollment season, retirees and seniors face another avalanche of mailers, TV ads, robocalls and telemarketing. Watch out: Many of these originate from lead generators, who are operating as marketing middlemen.
No wonder retirees are bewildered by the glut, with an average of 43 options to choose from, including Original Medicare. Furthermore, it is understandable that they are reluctant to review or change the plan, because making comparisons is so devilish. Kaiser Family Foundation research discovered that only a third usually compare plans during the 2-month enrollment window.
The result is that many enrollees are making such important decisions based on flawed premises. For instance, many consumers wrongly believe the Advantage Plans are affiliated with the federal Medicare program, being deceived by ads displaying an image of an official Medicare card or referencing a toll-free Medicare hotline. The Biden administration has tried to clamp down, banning Advantage plans from using the Medicare logo or other sneaky images that resemble it.
A Commonwealth Fund survey of respondents 65 and older reported that 17% had been misled by advertising, while 11% had even enrolled in a plan under the misapprehension that they would be able to continue seeing their doctor. Only later did they discover that their physician was not included in that plan after all, or carried restrictions.
Big beefs
Disillusioned seniors are becoming vocal. A KFF and PerryUndem survey of Medicare beneficiaries conducted in 2022 explored their dissatisfactions and reactions to the spate of marketing. Participants complained about a slew of aggressive tactics. Many of the seniors were not even sure who was on the other end of the call, whether a plan representative, a broker, or someone else. Nor were they clear on who was sponsoring an ad, which might appear to come from the government, but savvier seniors suspected private companies were responsible. The more skeptical ones did not buy into all the content, particularly the raft of free benefits, often touted by celebrities.
Commonwealth Funds, in its own 2022 survey, specifically pinpointed respondents’ types of complaints and the extent of their grievances. A whopping 74% fielded unsolicited calls, and half received emails, pushing specific insurers’ policies. Those calls are forbidden by the Centers for Medicare and Medicaid Services (CMS), unless previously agreed or requested. A third were bombarded with at least seven calls per week! Respondents grumbled that they were not given sufficient information, either regarding benefits or out-of-pocket costs. Nineteen percent objected that they were misled about plan discounts, and ten percent were asked for their Social Security number, a federal violation.
Regulation
The CMS agency rejected 300 Advantage ads in 2023 as misleading messages. In April, it took action and prohibited ads mentioning a specific plan name, or using confusing words and images.
Brokers are another sore subject. CMS only approves broker commissions to a maximum $611 per enrollee, but marketing organizations have been exceeding those limits. Across the board, private insurance companies are paying third-party intermediaries $50 to $762 for every successful sign-up. Nor is it surprising that Advantage plans are twice as profitable for private insurers as almost any other form of coverage! (And they have little incentive to advise customers to stick with Original Medicare without Medigap.)
Does all this mean you should avoid Advantage plans? Not at all! It just means to approach them with caution, do a lot of research and work with trusted independent advisors.
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