The debate continues about whether Americans are saving enough for retirement. The National Retirement Risk Index (NRRI) shows that more than half of households may not be able to maintain their current standard of living throughout retirement1.
This information was released by the Survey of Consumer Finances. On the other hand, a survey by T. Rowe Price shows that three years into retirement, retirees are living on 66% of their pre-retirement income, on average.
The study also shows that 89% of retirees are either “somewhat satisfied” or “very satisfied” with their retirement so far2. Given all the uncertainty around retirement costs, it is clear that Americans should be better prepared for their financial futures.
Regardless of the amount of a retiree’s savings, it is important to consider spending habits as well. Given that seniors may tap through long-term care options, annuities, or reverse mortgage loans, it is important to maintain a budget.
Despite what some may think, traditional savings tools like a 401k is not enough for many retirees to live in comfort.
The California Partnership for Long-Term Care estimates that the cost of long-term care will increase by at least 5% annually3. This estimate may frighten those facing retirement that do not have long-term care insurance.
Another important consideration is costs. Costs for long term care insurance policies increase as the applicant ages. For example, a 50-year old who purchases a long-term care insurance plan will pay much less than someone who purchases the same plan at age 75. Speak with a financial advisor to discuss if a long term care insurance plan would benefit you.
Annuities are common retirement tools that pay out steady streams of income. To invest in an annuity, one must first make an investment to later receive a payout at a future date. Payouts are made monthly, quarterly, annually or in a lump sum4. The amount that can be made from an annuity depends on the investment and other factors. Other factors may include the length of time that the annuity was owned and whether it was fixed or variable.
Reverse mortgage loans can be excellent financial tools for retirees who are house rich but cash poor. The house they raised their children in may be too large, may need expensive repairs or may not fit their lifestyle needs anymore.
A reverse mortgage loan allows homeowners who have significant equity built up in their homes to access that equity without having to sell their home or move.
Borrowers may use the funds that they receive from a reverse mortgage loan to make repairs or updates to the home. Borrowers must be at least 62 years of age to qualify for a reverse mortgage loan. They must also continue to maintain the home as well as pay homeowners insurance and property taxes.
Retirement does not have to be a stressful time. There are many options to reach financial security, especially during retirement. Meeting with a financial advisor to discuss your financial goals and requirements can help to better prepare you for retirement costs.