Money in the Middle

Another gloomy report on the financial prospects of retirement for baby boomers and Generation X. 

The National Retirement Risk Index from the Center for Retirement Research shows that today half of Americans will not have enough retirement income to maintain their pre-retirement standard of living.

 Here’s why:

1. Social Security benefits till replace a smaller fraction of pre-retirement earnings as the full retirement age rises from 65 to 67.

2. Fewer and fewer workers have a defined benefit plan (pays a set income) and must count on their 401(k) plans.  In theory, that’s okay.  In reality, most of us have made mistakes along the way.  That leaves the median balance at $78,000 for those approaching retirement. 

3. Most workers don’t save outside of their 401(k).

4. Retirement assets will yield less income, especially bond yields.  In addition, out-of-pocket medical expenses are expected to continue to rise consuming more of retirement income.

 So, those who were at risk of not being able to continue their lifestyle into retirement are more at risk than ever.  And those who were not at risk may find themselves at risk going forward – or at least closer to the line than they would like to be. 

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Percent of Households ‘At Risk’ at Age 65 by Cohort, 2004, 2007, and 2009

Source: Authors’ calculations.  CRRBC Oct. 2009 #9-22

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The good news is that younger households, who keep saving, may be able to catch up.  But for most baby boomers and seniors, time is not on your side for catching up.  The plunge in home values is one of the main reasons as many people looked to their home to fund their retirement.

 So what can you do? If you’ve planned well, have a pension and 401(k) and know the income you need for your retirement lifestyle – good for you!

 For the rest of us…unfortunately, there’s no magic silver bullet.  It’s a matter of doing what you can to adjust your lifestyle and continue to save as much as you can, in retirement funds and outside; work longer than planned to help build up retirement assets; pay down debt and calculate the numbers carefully on when to take Social Security.

 If you need assistance, get the help of a financial professional.  As friends for referrals and check with your 401(k) plan to see what financial planning tools and resources are available.

 It also time to accept that retirement won’t quit be they way you thought it was a year ago.  And an opportunity to help younger generations understand the importance of financial planning and starting retirement savings as soon as they can.

Resource:  National Retirement Risk Indes:  After the Crash

No cost-of-living adjustment for Social Security recipients in 2010.  That’s the official word today from the Social Security Administration.  The focus now turns to Congress to see whether they will  provide a $250 payment to each Social security recipient in 2010.

The supporters of the $250 payment say that seniors experience more health care costs and those costs are increasing much faster than the consumer goods formula COLA is based on.  AARP is contacting its members to tell members of Congress to support the payment.  President Obama endorsed it today.

I’m sure it will be welcome relief to those who are experiencing increases in  Part D drug plan prices increasing or Medicare Part C plan premiums. But I wonder when we will stop making exceptions to rules because we don’t like the outcome.

Should you carry a mortgage into retirement?  Probably not.  That’s the recommendation from a new report from the Center for Retirement Research at Boston College called  “Should Your Carry a Mortgage Into Retirement.”   And it’s an issue many baby boomers and seniors are grappling with since housing was to finance their retirement.  it really requires a different look at how we think about housing .

 Pay off the mortgage before you retire was generally the rule of thumb for previous generations,  But housing price escalation and the promise ( false, we know now) that housing value would continue to rise kept many people buying up.

 Among households aged 60 to 69 in 2007, 41% had a mortgage.  And, 51% had suffieneict assets to repay their mortgage, according to the report.  But they chose not be “mortgage free.”

 So now that the housing market has changed what the right thing to do.  As with all things financial, it depends on your personal circumstances, but the report says that unless your after-tax return on risk-free assets such as certificates of deposits and Treasury bills exceeds the after-tax interest cost of the mortgage (a rare occurrence)– you’d generally be better off using the assets to pay down the mortgage.

 One of the points made in the paper is the risk retired households take by not paying off the mortgage and investing assets.  “If a household with a mortgage mismanages its investments, or over-estimates the rate at which it can decumulate those investments, it risk losing the house, it’s only remaining asset.”  A pretty dark scenario.

 Baby boomers in particular have a very complex relationship with housing values and financial planning.  Most have grown up with continually escalating home values and most recently have used those homes to underwrite their financial lifestyle.  There’s an interesting post on Boomers and Housing:  A Symbiotic Relationship Unravels that’s worth a read.

 So, if you are nearing retirement, or in retirement, and still holding a mortgage, but could pay it off, it’s worth examining whether continuing to pay that mortgage makes sense.  

 The days of a house serving as a piggybank are gone. It’s time for most of us to start thinking of our house as a home and figure out the best way to build it into our financial and retirement planning.

The Consumer Product Safety Commission has issued a recall on Jitterbug cell phones – the popular for senior, easy to use cell phone.  The problem has to do with access to 911 service in some areas and there is a quick software fix. The recalled cell phones that are in a no-service area and display an “out of range, try again later” message could fail to connect to emergency 911. If you are one of the 160,000 consumers impacted and have not been contacted, contact Samsung toll-free at (866) 304-4980 between 7 a.m. and 9 p.m. CT Monday through Friday, and on Saturday between 9 a.m. and 6 p.m. CT, or visit the firm’s Web site at www.samsung.com.

 This cell phone is an example of the new kinds of technology being created to serve the senior market.  It’s a simple phone that doesn’t have all the fancy features most cell phones do.  It just makes calls, and includes a service that connects the caller to an operator who can make calls for them.  

 It can be a great solution for those who want access and safety/peace of mind that comes with having a cell phone, but a lower cost and ease of use.  It is targeted to people who will use it for a limited period of time (30-60 minutes per month).  It can be a smart buy for the right situation.

 Here’s a link to the Consumer Product Safety recall notice.

 Here’s a place to buy the Jitterbug phone.

Emotionally and financially, helping parents pay for housing is much different than helping your children buy a first home.  If Mom and Dad need help covering housing costs at this point in their life, something has not gone as planned.

It may be investments gone wrong.  It may be retirement costs are higher than expected.  Loss of retiree benefits.  Or there has been a medical condition that has eroded savings.  Or they simply need to move closer to relatives but can’t sell now.  A recent survey by the Pew Internet project found that of those aged 65+, almost 10% owed more on their mortgage than their house was currently worth; for those 50-64 – the percentage was 30%.

Some speak of this as a time of “negative inheritance.”  You thought you’d be getting a small inheritance from them someday, yet it has turned out that your money is flowing to help support them as they age.

So what’s the right thing to do?  It all depends.  Here are some tips. 

1. Have a frank discussion about money.  Not just the housing crisis, but an overall look at their financial position – debt, health insurance coverage, available assets so you can get a true sense –together – of the current and future needs.  If you have a financial advisor, you might ask them to help with this discussion since it will likely impact your financial future as well as theirs.  And having a third party can help.  It’s embarrassing for your parent and probably uncomfortable for you.

2.  Be honest with yourself about what you can do to help.  This is where the friction between emotion and money sparks.  If helping them jeopardizes your own financial position, it’s not a solution.  Funds to help them should not be coming out of your retirement funds, but rather out of current income or other savings.  Otherwise you are putting your future at risk and potentially perpetuating the cycle.  And if they are in the position they are in because of financially irresponsible behavior and show no signs of changing, your dollars won’t really make a difference.

3.  Structuring housing support.  Are you helping pay their mortgage, are you helping pay their rent, are you purchasing a home that they will be living in (paying some costs or none at all).  How you structure the financial assistance can make a big difference for your financial situation.  If you are purchasing the property, you have a financial asset.   If you are paying their mortgage, they own the asset.  If you are paying rent, that’s money that won’t be recouped. Also look into what your assistance does to their ability to tap into government assistance programs.  Speak with a tax advisor or elder law attorney about the right way to structure financial assistance that is beneficial for both of you.

Providing assistance to your parent can be a real treasure – a way to give back when it counts most.  Or it can be another strain on your already beleaguered finances putting both you and your parents at risk and leading to anger and resentment.

If you make the decision to help pay for housing, then understand this is not a decision you can easily turn away from in the future.  Take the time to get the information you need to make the right decision for you and your parents and your family.

Doctor visits. How to get there when you can no longer drive?

 If you area baby boomer helping care for an aging relative, you know this is a big issue.  Because you are probably spending a lot of your time driving to and from doctor appointments. Squeezing them in between work and your own family responsibilities.

The current economy has made that a bit tougher.  It’s harder to take time off work or looking for work.  But, the solutions are few.  I think this is one of the large issues facing our aging society – spread out as we are in suburbs and exurbs.  But, what’s the solution today?

There are some volunteer groups that can help.  Check with your local Office on Aging or senior center for possible resources.  Taxii?  An option but for the frail elderly not a solution since they need assistance getting to and from the vehicle as well as often help checking in the doctor’s office.

There is a new business in San Francisco that holds hope for those of us trying to figure out how to be in two places at once, and keep our loved one in good hands.  The business is called SilverRide.  And, they just won business of the year award from the American Society on Aging.

In addition to providing transportation to older adults, SilverRide enables its clients to have a more connected, fulfilling, dignified and independent lifestyle after their “driving retirement,” while providing peace of mind to those who care for them. It can even positively impact long-term health and quality of life.

The relationship between the client and the driver distinguishes SilverRide from other transportation services. SilverRide conducts an extensive interview with its clients ahead of time to better understand their particular needs. It also trains its drivers in senior sensitivity and safety on an ongoing basis. This process forges a rich relationship between the client and their driver companions, who bring their own unique personalities to the table.

SilverRide also provides ongoing communication with its clients’ families, whose work and familial responsibilities or distance from their aging parents may prevent them from caring for them full-time. SilverRide’s on-going communication and breadth of services help reduce this anxiety.

Susan Steiner Saal and Jeff Maltz, Co-Founders of SilverRide, said, “We both watched our parents struggle to manage the needs of our grandparents. When we hear from our clients that SilverRide has solved a real problem for them, it is a reward in and of itself!”

And it’s about more than doctor’s visit – it’s maintaining social interaction and activity.

According to the American Public Transportation Association, when older adults stop driving there can be a number of serious negative consequences. They make 15% fewer trips to the doctor and 65% fewer trips for social, family and religious activities.

In fact, The Journals of Gerontology reports that elderly non-drivers are four to six times more likely than their driving counterparts to pass away during the subsequent 3-year period. This devastating outcome is due to the fact that for older adults, their ability to drive provides independence that leads to underlying health and well-being.

So if you are in San Francisco, look them up.  Elsewhere?  Any one have any recommendations for solving the transportation problem?

Baby boomers are know- it-alls.  All the research says we love to be seen as the experts – with it on topics large and small.

Then a health care crisis hits with our parents.  We realize we don’t know a thing about this area of health care.  But the danger is that we pretend we do. We don’t necessarily trust the experts.  That ends up causing more problems and probably more costs.

A conversation this week with a friend again emphasized to me how little most of us know about Medicare, the health care system and long-term care needs.  It’s not our fault.  We probably never really had a need to know until this point.  And unless you are a planner, you probably have never really thought about your own future long-term care needs.

So we end up in a hospital, relieved that our loved one is alive but confused by what the experts are telling us happens next.  The situation this week was a stroke.  The next step is rehabilitation.  What’s the right place?  Who pays for what?  What to expect from rehab? They need to move her today?   So many questions.  So many confusing acronyms and initials. So much pressure and so little knowledge base to work from.

So what do you do?  You want to be a good advocate for your loved one.  You want to make the right decisions about their care and their future.  Here are some suggestions:

1.  Listen carefully and ask questions of the care experts at the hospital/care facility.  Ask them to give you not just the next decision, but layout a general framework for what may happen in the days and weeks ahead, and what to expect.  They’ll qualify their answers – because it does “all depend – but it at least gives you a chance to wrap your head around the event and the process ahead. Remember, this might be your first time, but they have been through this many times before and do probably have a good sense of what’s ahead.

2.  Call on others who have been through this.  Friends, family members, colleagues. Each situation is different, but they can help put things into context for you.  And you can learn from their mistakes.

3.  Get educated.  Go to www.Medicare.gov and understand the basics of how Medicare works and what it covers.  There are some great resources and booklets to download.  If you need to look at nursing homes, there is a nursing home compare feature that will help you get a sense of quality of care available at various facilities.  This isn’t the same as your employer health insurance so don’t make assumptions.

4. Consider hiring an expert.  Sometimes it can be helpful to hire an expert – your own advocate – to help you through the health care morass and decisions.  They are generally called care managers or geriatric care managers.  They are people knowledgeable about aging and long-term care issues and local resources.  They can be a great bridge between the health care institutions and you – your own translator and guide.  Some alternatives are the association of care managers www.caremanager.org  and www.yoursupportnurse.com , a national service that provides local assistance

Seems like there is just no good financial news for baby boomers. 

Yesterday, Fidelity Investments released it’s annual survey of what it will cost a couple to cover their medical expenses in retirement.  They estimate $240,000 for a 65 year old couple retiring in 2009. 

And you thought Medicare would reduce your health care costs to almost nothing.   These kinds of costs come as a surprise to many as they move to retirement.  If you are helping your parents or an older  family member cover their health care costs, you know that number is not exagerated. with many companies dropping retiree health benefits, individuals are left to cover the costs of insurance out of their own pocket.

More bad news — this doesn’t include the cost of over the counter medications, dental and long-term care.  On average, long-term care in a nursing facility adds another $78,000 to the costs.

This is a good wake up call to make sure your retirement planning includes the cost of health care and that you know how much risk you want to cover and how much you want to shift to an insurance company.

The Fidelity estimate takes into account cost sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare. You’ll want to look at covering the gaps that Medicare does not cover through a Medicare Supplement Plan or Medicare Advantage Plan.  You should also take a look at long-term care insurance to cover potential long-term care costs.  You don’t need a cadillac policy, but some coverage will help assure that your family doesn’t feel the financial burden of your care.

How you use insurance to cover health care costs depends alot upon your financial position and your tolerance for risk.  But, it’s not too soon to start thinking about this issue and get educated about what Medicare covers and what it doesn’t.

Are baby boomers angry about the state of their retirement funds?  Absolutely.  But it’s more than that.  It’s that V8 juice moment that says life is going to be different than you thought.

Smack across the forehead–  “I could have had a retirement!”

So retirement plans are changing – delay a few years, return to work (if you can find it), cutback on life style, eat out less, discover stay-at-home vacations– to reflect the new state of your retirement assets.  It’s probably a silver lining for all those employers who have been wringing their hands about the baby boomer brain drain.  Guess what? You won’t be able to pry them out of their chairs until they refill those dwindling 401(k) coffers.

So if you are a baby boomer, facing changing expectations about retirement, what do you do now?  It depends a lot on the attitude you’ve had about spending and saving.  Are you a saver/planner or a spender/debtor?

If you have planned and saved conscientiously, living within your means, investing wisely, contributing regularly – you probably feel angry.  Rightfully so.  The good news is that if you can keep those patterns, you have a chance to be where you thought you would be – just maybe a few years later. 

If you’re a spender/debtor, it’s time for a reality check.  Because you really were not going to retire when and in the manner you thought.  You bought what you wanted, used your house as a piggy-bank and thought retirement savings would somehow take care of itself.  Now, it’s time to change your ways.

Sp here are three tips: (1)  Start being realistic about retirement –  the sooner you begin to adjust your expectation, the easier it will be to figure out a way to get there. (2) Learn to love simplicity and a more frugal lifestyle (3) talk to the people you know who are good with planning and money and see if some of their “secrets” will help you get on the path to rebuilding retirement expectations.