The Three Pillars of a Safe-Money Retirement
Everyone wants a stress-free retirement, but so many retirees are constantly worried about their financial wellbeing. How do you overcome the stress of establishing a safe retirement plan?
Many are concerned about having the right medical coverage and whether they can afford the monthly premiums or the huge bills which often follow a hospital stay. Others are concerned about losing everything if they were to get into a long-term care situation because they’ve seen friends and family members completely drain their savings very quickly. Some are concerned about their final expenses or leaving their loved ones in a bad place if something happened to them. And the #1 stressor by far is worrying about having enough money to pay the bills every month now and whether they will outlive their retirement savings.
So what can be done to overcome all this fear and worry? There are three pillars of a safe-money retirement plan. First is life insurance, to ensure your family is protected and secure once you’re gone. Next is a safe-money retirement plan that can protect your retirement savings from losses and generate an income you can’t outlive. And finally, proper Medicare coverage, ensuring your medical expenses are taken care of throughout retirement.
Let’s start with your medical and drug coverage with Medicare. I often get the question, what’s the difference between a Medicare Advantage plan and a Medicare Supplement plan from those about to turn 65. Still, many people who are already using Medicare don’t fully understand the differences, so let’s dive in and make sense of it. Original Medicare consists of Part A, your hospital coverage, and Part B, your doctor coverage. If you’ve worked in this country for at least ten years, then Part A has no premium at all; you’ve paid it through taxes throughout the years. Part B has a small monthly premium typically taken out of your social security payments each month. For 2021 this amount is $148.50 per month. You could qualify to get all or a portion of that back, depending on your financial situation. There are three main issues with original Medicare:
- There are no out-of-pocket maximums at all, which means you could get enormous bills if and when something significant happens.
- There are sometimes large co-pays and coverage gaps that can add up to even more huge bills.
- There is no drug coverage at all.
In order to overcome these three shortcomings in original Medicare, you will need to choose either an Advantage plan or a Supplement plan along with a prescription drug plan to go along with original Medicare.
First, let’s talk about a Medicare supplement plan. It is precisely what it sounds like; it supplements original Medicare, filling in 2 of those three main issues we discussed: providing maximum out-of-pocket expenses and covering part or all of the co-pays and gaps in coverage. These plans can be quite costly, but they can cover pretty much everything. However, they do not include prescription drugs, so there will be another expense needed, which is adding a Part D drug plan to go along with the supplement plan you choose. So with a supplement plan, you are still paying your Part B premium along with the supplement premium and the prescription drug premium. Another thing to keep in mind is that these plans don’t include dental or vision or hearing coverage either, so those will be additional premiums if you want those coverages. Trust me, supplement plans can add up fast, but they are great if you can afford them.
Your other choice and the one a vast majority of people go with is a Medicare Advantage plan. These plans are administered by private companies and replace original Medicare with a policy that by law must cover at least what original Medicare covers, but they all have so much more to offer. Many of these policies are available at no additional premium, so all you will have to pay is your monthly Part B premium, and they cover your hospitalization, medical and drug benefits, and they have low annual out-of-pocket maximums. Most also include dental, vision, and hearing coverage. Some even come with gym memberships and a quarterly allowance to buy healthy food.
In most cases, there is a Medicare Advantage plan that will work perfectly for you, whether you can stay in-network with an HMO plan or whether you’d like the flexibility of going to any doctor in the country that takes Medicare with a PPO type plan. These plans provide a tremendous amount of coverage and safety for a very minimal or no additional premium. They are what a vast majority of retirees decide to go with for their plans.
The next pillar is life insurance, and it’s one of the simplest stressors to address. Being concerned about what will happen once you’re gone is a common worry, but it indeed doesn’t have to be. There are many different types of life insurance available to tackle most concerns. Suppose you’re concerned about your final expenses, or you’re concerned you wouldn’t qualify for a traditional life policy due to your age or health issues. In that case, you can get a guaranteed issue life policy, many times called a final expense policy, that you could not be denied for any reason and that will have the same premium no matter how long you live. If you are in good health, then a more traditional policy might be the right fit for you, whether that is a term policy (meaning it lasts a certain number of years) or a whole life policy that will last as long as you live. Having one or multiple of these policies in place, the fear of what will happen when you are gone can vanish.
The third pillar is a Safe-Money Retirement plan that can provide complete protection for your hard-earned retirement dollars while still allowing them to grow. These plans can also include a guaranteed lifetime income that you can never outlive, no matter how long you live, so you’ll never have to worry about not being able to cover those monthly expenses or outliving your savings. Another benefit to these products is that many can include a long-term care benefit that will multiply your monthly income if you ever got into a long-term care situation. Most of the time, these Safe-Money Retirement plans are built using a type of Fixed Annuity, which is nothing more than a contract with an insurance company. These fixed annuity products offer complete protection from any market losses while allowing for a fixed or variable growth percentage. Having the protection these products provide can alleviate the stressors of running out of money and the stress of what might happen in a long-term care situation and what could happen to your retirement savings if there was a significant market event.
The last piece of advice is to make sure you work with an independent advisor and not one that only works for one company. By dealing with someone completely independent, you can see all of the Medicare, Life, and Safe-Money Retirement options available in your state to ensure you get into the best plans available for your specific situation.
By having these three pillars of a Safe-Money Retirement plan in place and securing your future, you can rest easy knowing your retirement years can be stress-free.