I’m not a big fan of surveys because I think people often say what they think wants to be heard or don’t really know what to say so just say what feels right. Nevertheless, often only surveys can give us a pulse on a situation or points of view. The following survey causes me to make a few observations – what’s new?
We all know those of us retired live on a fixed income, right? Actually we don’t. Social Security adjusts for inflation and if one is using a steady withdrawal strategy from assets to live on they too are designed to account for inflation. But there is a lesson here. When saving for retirement, include funds outside of retirement investments that can provide supplemental income as needed. That might be interest from bonds or bond mutual funds, including municipal bonds or dividends on individual stocks or income focused mutual funds. Keep reinvesting those earnings until they are needed in whole or part to offset inflation.
As for healthcare, many overstate the financial risks. Yes, health care is a big and scary item, but it can be planned for. There are two places to focus; premiums and out-of-pocket prescription costs.
Most out-of-pocket costs for medical care can be handled by having a Medigap policy or by enrolling in a Medicare Advantage plan (MA).
Plan for the premiums for either though.
The out-of-pocket costs for prescription drugs can vary greatly depending on the medication you take, the benefit design of your Part D plan (or MA plan) and your plans formulary. Medicare.gov is a good place to get the facts. In your retirement planning setting aside a few thousand dollars – perhaps using an HSA – to be used only for Rx OOP expenses is a good idea.
I HAVE ONE OTHER OBSERVATION. Looking at the high level of concern about the future strength of both Social Security and Medicare expressed in this survey, and generally, wouldn’t you think Congress would give fixing those programs higher priority over adding new long term obligations to government spending? Silly me.
Washington, DC, September 9, 2021:
More than three-quarters (77%) of retirees and near-retirees cite declining purchasing power as a major concern,
and that’s greater than the share concerned about the cost of healthcare (74%),
according to a new poll released today by Kiplinger’s Personal Finance magazine and industry-leading digital wealth management company, Personal Capital, an Empower Company.
Rounding out respondents’ top five financial concerns about the future were
the financial strength of Social Security (71%)
and Medicare (67%),
and the possibility of an impending recession (62%).
The national poll was conducted between June 17 and June 24, 2021. “It’s clear that some effects of the pandemic—spiking consumer prices, an uncertain economy and stock market, and worries about the financial future of government safety nets—is creating unease among retirees and those nearing retirement,” said Mark Solheim, editor of Kiplinger Personal Finance magazine.
“Fortunately, the savings rate has jumped, and those still working are taking action to create a more secure retirement,” said Solheim. “It is extraordinary, though not surprising, to see worries about inflation eclipse the cost of healthcare as the leading financial concern of retirees,” said Jay Shah, President of Personal Capital. “However, retirees and near-retirees who are worried about looming inflationary pressures can stay focused on their overall investment strategy.” “It’s wise to avoid letting current events drive long-term decision making,” Shah continued.
“Having a plan that’s designed to endure varying conditions leading up to and during retirement is the key to increasing your financial confidence at any stage.”
Although they are concerned about inflation, respondents remain cautiously optimistic about their retirement and the overall economy: Seventy-five percent (75%) say that, despite the pandemic, they are very or somewhat confident that they will have enough income to live comfortably throughout retirement.
A majority say they are very or somewhat confident the overall economy will improve over the next year (57%),
and that the pandemic hasn’t changed their current or planned standard of living through retirement (58%).
An even larger majority (63%) say their investment outlook has not changed since the beginning of the pandemic.
Among their top financial goals over the course of the next year are: Spending more on travel, hobbies and interests Reducing spending Simplifying finances Monitoring investments more frequently Investing more.
Eighty-six percent (86%) of respondents received federal stimulus money during the pandemic; nearly half,
47%, saved the extra income,
while 35% used it to pay bills
and 18% paid off debt.
The pandemic has led a minority of respondents to alter their retirement planning, though it has had a more immediate impact on peoples’ current finances: 1 in 3 say the pandemic has convinced them they will need a bigger nest egg for retirement
Among near-retirees who plan to retire within five years,
more than 4 out of 10 (41%) say they have begun saving more,
and nearly one-quarter (24%) are delaying their retirement date.
Seventy-one percent (71%) say they spent less during the pandemic, especially on entertainment
(57%) and transportation
(43%) 1 in 3 say their overall living expenses increased,
with 24% spending more on medical expenses
and 17% offering more financial support to family members