By Elliot N. Dinkin, Cowden Associates Inc. | April 2016
Many employers today provide access to planning tools and financial advisers to assist employees in maximizing their retirement wealth to provide for a comfortable post-work lifestyle.
These tools and services are absolutely necessary for employees. However, there are other major factors that are often overlooked, namely:
Without a thorough understanding of these issues, there could be a devastating impact on retirement wealth.
Health-care costs can have a significant impact on when you take retirement and apply for Medicare. That being said, individuals must remember that Medicare does not cover dental, hearing, vision, podiatry and long-term (custodial) care.
For example, a 65-year-old Ohio couple retiring today and living to age 90 can expect to pay almost $475,000 in health-related costs throughout retirement. This is a healthy couple with no supplemental coverage earning the minimum before income penalties are levied and residing in a state that represents the national average for health-care costs. Now, back up one decade and that couple is 55. When they retire in 10 years, they can expect to pay more than $800,000 for the same coverage.
Decisions will need to be made whether an individual will apply for original Medicare (Parts A and B or Parts A, B and D) or choose to pay for a Medicare Advantage Plan or even a MediGap policy. There are significant differences in plan design and doctor access when choosing a Medicare Advantage Plan.
Premiums for Medicare Parts B and D can be affected by an income means test, with higher incomes equaling higher premiums. (Higher income is representative of Social Security, pensions, wages, 401(k)s, annuities, capital gains, dividends, municipal bonds and rental income.) These premiums are also subject to state of residency with rates fluctuating drastically among states.
Table 1 Projected Health-Care Costs for 55-Year-Old Couple Planning to Retire at 65
Employees need to be cognizant of their planned retirement age versus full-retirement age (FRA) and how waiting a few years can increase their retirement wealth.
It is very difficult for employees and spouses to determine when to retire and what methods of filing for Social Security should be utilized to maximize their benefits.
Individuals who choose to retire before FRA will see a reduction in their Social Security benefits. For example, those retiring at age 62 will see a 25% reduction in their Social Security benefits. Meanwhile, those who retire at age 70 will see a 32% increase in their benefits.
Table 2 Monthly Payments Based on Age Beginning Social Security
Additionally, employees need to understand life expectancy and how that can impact their retirement planning. The average life expectancy is 78.6 years for women and 76.3 years for men. These figures can vary greatly depending upon health conditions.
Cowden Associates Inc. offers the Retirement ComprehensiveCast service developed to provide missing elements of financial planning and aid employers in equipping employees with the tools and services necessary to maximize their retirement lifestyle.
About the Author
Elliot N. Dinkin is president/CEO of Cowden Associates Inc.
Read the April edition of Benefits & Work-Life Focus.
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