As a divorced woman, how can I cover my health care costs in retirement?
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Medical expenses resulting from a chronic or sudden illness can derail the most carefully crafted retirement strategy. So it's not surprising that health care costs are the top financial concern for retirees as well as those approaching retirement. According to the latest Merrill Lynch retirement study , 53% of those surveyed cite health care expenses as their biggest worry and 75% say they are looking for help sorting through health care options.
For women, the risk that health care costs will threaten their retirement security is even more of a concern. Not only do women tend to live longer than men, but health care costs and insurance premiums tend to be higher for them. In addition, women may face obstacles finding affordable health care coverage after a divorce or the death of a spouse. With Medicare covering only about 60% of the cost of health care, a 65-year-old woman would need $93,000 in 2012 in order to have a 50 percent chance of having enough money saved to cover health care expenses in retirement—and that doesn't count the cost of long term care, according to the Employee Benefit Research Institute. "If you're still working, you could take advantage of catch-up provisions in your 401(k) plan or IRA to contribute more to your savings," suggests Debra Greenberg, director, Personal Retirement Solutions Group at Bank of America Merrill Lynch. Opting for higher deductibles can help to lower the cost of your insurance premiums. And when it comes to long term care insurance, "think about buying it before you need it," she adds. The earlier you purchase coverage the less expensive the premiums will be. For more strategies, read "Why Women Pay More for Health Care—and What You Can Do to Prepare" and "Healthcare Costs in Retirement."
What's the most surprising finding from the just-released
Merrill Lynch retirement study?
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"There were quite a few unexpected findings," says Jeff Cimini, Head of Personal Retirement for Bank of America Merrill Lynch. We've all known for a while that the 76 million baby boomers —10,000 reaching retirement age every day--would redefine what it means to be retired. But the extent to which that is true is just now becoming clear. "They're moving in and out of work, taking active roles in causes they care about, and continuing to learn and grow," David Tyrie, Head of Personal Wealth and Retirement Solutions for Bank of America Merrill Lynch, points out. What hasn't been as well understood up to this point is how their family dynamics and their financial goals are shifting. For instance, three quarters of spouses 45 and up say they want equal responsibility in making major financial decisions, which speaks to a much more collaborative partnership in terms of long term financial planning and investing for retirement, Tyrie observes.
Overall, finances are taking on a far greater role in family relationships, with 43% of those surveyed saying they expect to help out a family member financially, 38% expecting to provide or help a family member pay for housing, and 25% expecting to pay for or help to manage a family member's health care or long term care. "Retirees and those nearing retirement are actively looking for guidance in meeting those challenges as well as the many new decisions they face as they move into this next phase of their lives," notes Cimini. When it comes to personal financial goals, achieving peace of mind is seven times more important than accumulating wealth (88 percent and 12 percent, respectively) for people in or near retirement, he adds.
"Boomers have always paved their own way, and are once again pioneering new territory," says Andy Sieg, head of Global Wealth and Retirement Solutions for Bank of America Merrill Lynch. "They share a strong view that retirement is not an end but a beginning, an opportunity for reinvention. Their perspectives, concerns, goals and how they plan to achieve them are different. What they seek is clarity and confidence about what is possible in the context of their hopes and myriad uncertainties."
For more information on the results of the study, read Americans' Perspectives on New Retirement Realities and the Longevity Bonus.
How can I prepare financially for a longer life?
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People are living longer than previous generations did, and that fact alone is reshaping what it means to be retired. While the extra years open up a lot of new possibilities, longevity risk, or the risk of outliving one's wealth, is becoming a real concern for many Americans. In fact, according to the latest Merrill Lynch retirement study, 47% of men and 61% of women said that "running out of money" was their biggest worry. Many are working longer, both by choice and because they value the extra income.
Among the benefits of working longer is the ability to postpone when you will claim Social Security. The longer you can wait to do so, the larger your monthly check will likely be. "If you begin benefits at 62, the earliest allowable age, instead of waiting until full retirement age, you're locking in a permanent discount of 25% in your monthly checks," explains Bill Hunter, director of Personal Retirement Solutions at Bank of America Merrill Lynch. "If, on the other hand, you can wait until age 70, you'll get nearly a third more than if you had started at full retirement age — and about 75% more than by opting to begin benefits at 62."
But working longer isn't a strategy that everyone can or wants to pursue, and there's no guarantee that your health will allow you to continue working. That's why having a thoughtful strategy for drawing down the assets you've worked so hard to save and invest is critical. Read "A Drawdown Strategy Designed Just for You" for insights on how you can work with your Financial Advisor to create an income strategy that makes sense for you.
Continuing to invest for potential growth can be another important factor in maximizing the value of your assets. "Retirees today have to view themselves as long-term investors," says David Laster, director, Investment Analytics at Bank of America Merrill Lynch. For those who are not yet retired, increasing contributions to 401(k)s and IRAs can help to go a long way toward managing longevity risk, adds Debra Greenberg, director, Personal Retirement Solutions Group at Bank of America Merrill Lynch. For more insights, check out "Pitfalls in Retirement" and "Claiming Social Security."
I've been offered an early retirement package. What issues should I consider as I evaluate it?
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Three out of five retirees surveyed in the latest Merrill Lynch retirement study said they retired earlier than expected. Some do so as a result of a corporate downsizing; others because of health problems or because they want to explore other career paths. Whatever your reason, it's important to review your exit package carefully. And keep in mind that the terms of early retirement packages are sometimes highly negotiable.
Your company may very well be willing to engage in some give and take with you, especially if you've been a valuable employee. You may, for instance, be in a position to discuss continuing with the company as a consultant, perhaps maintaining participation in a 401(k) while doing so. Or you might want to request accelerated vesting of options or grants. "Most companies offer a retirement-eligibility provision for their equity compensation program that kicks in upon achieving a certain age or years of service," says James Humza, Director, Equity Award Services at Bank of America Merrill Lynch. "In the case of forced or early retirement, sometimes companies will expand the rules to allow more people to get the full vested value of their outstanding awards."
The bottom line: The initial package you are offered may just be a starting point for a discussion that will benefit both you and your employer. For further insights, take a look at Negotiate a Smarter Retirement Package.
What retirement? I don't feel like I'll ever be able to retire.
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A lot of people worry that they can't afford to retire. In fact, the Merrill Lynch retirement study, Americans' Perspectives on New Retirement Realities and the Longevity Bonus, found that people expect to delay retirement by an average of four years. Seven out of 10 people say they plan to continue working in retirement, with 47% of men and 61% of women expressing concern that they could run out of money. Living longer, economic uncertainty and family responsibilities all contribute to those worries. "Having a strategy for how you're going to manage the assets you've worked all those years to accumulate can help you feel more optimistic and in control of your life in retirement," says Bill Hunter, director of Personal Retirement Solutions at Bank of America Merrill Lynch.
"While working another three or four years can help to shore up savings, the study found that it also helps to have a guide as you transition into this new phase of your life," adds Dr. Ken Dychtwald, founder and CEO of Age Wave, which partnered with Merrill Lynch in conducting the study. "People approaching retirement are faced with a lot of complex decisions—about Medicare, Social Security and managing their assets so they'll last. They're realizing they need more than the latest stock tip from their financial advisors."
"Whereas before people saw retirement as the goal they were working towards, now they're thinking through retirement and realizing that they need financial strategies for living in retirement," notes David Tyrie, Head of Personal Wealth and Retirement Solutions for Bank of America Merrill Lynch. "The financial services industry will have to change to meet those needs." For more insights, check out A Path to Retirement Success.
How can I help a family member with long term care costs?
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According to our latest study, 25% of people expect to pay for or help to manage a family member's health care or long term care needs. Depending on how much care your family member needs, providing assistance can take the form of assembling a team of home health aides. Or it could involve looking for the right eldercare facility.
Questions to consider in the event that you need to select an eldercare facility include: Should it be located in your loved one's hometown, or in a location more convenient to the family members who will visit regularly? And what kind of facility is best suited to your loved one's needs? "But the first step in arranging appropriate care is having a talk with your family member to find out what their needs and wishes are," says Debra Greenberg, director, Personal Retirement Solutions Group at Bank of America Merrill Lynch.
Depending on your situation, helping to pay for care could be challenging. "Your Financial Advisor can help you incorporate the cost of long term care for yourself and aging family members into your retirement strategy," notes Greenberg. The earlier you plan for these expenses the better off you'll be. The National Association of Area Agencies on Aging, which has an eldercare locator, is another useful resource for identifying local caregiving resources within a range of budgets. For more insights, read Family & Eldercare: Will You Be Ready? and Understanding the Role of Power of Attorney.
I'm 23. My company offers a Roth 401(k) with a $17,500 cap during 2013. Should I be putting as much as I can in that, or contribute to a separate Roth IRA?
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There's no answer that's right for everyone, and it's a good idea to consider all of your financial goals and strategies as you decide what's best for you. First, check with your tax advisor to see whether you're eligible to contribute to a Roth IRA, based on your modified adjusted gross income and tax-return filing status (i.e., single, married filing jointly, etc.). Your tax advisor can help you consider your options. But, in general, if you are satisfied with the investments offered in your company's Roth 401(k) plan and there is an employer matching contribution where you work, you might consider contributing to your Roth 401(k) first. That way you won't leave free money on the table. Remember that while Roth 401(k) contributions are made after taxes, the employer matches are made with pretax dollars, and the matching dollars accumulate in a separate account that is taxed as ordinary income at withdrawal. For more insights on the features of a Roth IRA, read "Traditional IRA or Roth IRA."
How can I decide whether relocating would be a good retirement move for me?
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The decision of whether or not to relocate is very personal, and you might be best served by approaching it not solely financially, but in light of how it would help you achieve your goals for a fulfilling retirement. "The 'where' conversation needs to start early with a discussion around aspirations," explains Bill Hunter, director, Personal Retirement Solutions at Bank of America Merrill Lynch. "Once that's on the table, you can take a deeper look at the pros and cons of various geographic locations, and plan financially for your move." Of course there are factors like climate and proximity to family, friends, and loved ones to consider in contemplating a move. But other factors, like availability of part-time work; local and state taxes; the tax implications of selling your current home; your desire to downsize or not; and health care options in the region you're considering, will come into play as well. Talk with your Financial Advisor about how relocating might fit in with your other retirement goals. Find further information in Location, Location, Location.
My husband and I have totally different money styles. I would love for us to agree on ways to prepare for retirement.
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This is a stumbling block for many couples, but one that's well worth overcoming. The latest Merrill Lynch retirement study found that 73% of men and 76% of women want a collaborative partnership when it comes to financial strategizing. But before tackling the difficult discussion about your financial styles, perhaps you and your husband could put money matters aside and find some common ground on your shared goals for retirement. Once you've agreed on what you'd like your retirement to be, you can move on to the thornier matter of how to get there. Start by asking some very basic questions, such as when you'd like to retire, where you'd like to live when you retire, and how you envision spending your time.
One method that many couples find helpful to get the conversation going is to bring their Financial Advisor and other professionals into the picture. "It can be easier to have an objective person from outside your relationship asking questions that start a discussion,' says Debra Greenberg, a director in the Personal Retirement Solutions Group at Bank of America Merrill Lynch. Try not to delay this discussion. Waiting will not make the problem go away, and you might be glad to have the extra time to accommodate, say, the slower asset growth associated with your spouse's aversion to investment risk, or the extra expense involved in setting up the small business you've dreamed of launching in retirement. "An advisor can help to create a fully diversified retirement strategy and adjust as life events occur," says Greenberg. Find more helpful background in A Couple's Guide to Retirement.
Does Medicare cover the cost of long term care?
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Neither Medicare nor any of the supplemental Medicare plans covers the cost of a prolonged stay in a nursing home facility. Anyone who reaches age 65 is likely to have a 40 percent chance of entering a nursing home. About 10 percent of those who enter nursing homes will stay five years or more—and the annual cost of a private room in a nursing home averaged $83,585 in 2010, according to the U.S. Department of Health and Human Services.
Long term care insurance (LTC) is one option you might consider to help you prepare for potential long term care costs, but premiums for LTC are rising rapidly. Ways to help keep costs down include purchasing a policy sooner rather than later—the younger you are the lower your premiums will be. You could also manage costs by selecting a longer "elimination period," or the time between the date of a claim and when benefits begin. Or you could opt for coverage for home and community-based support rather than nursing home care, notes Bill Hunter, director of Personal Retirement Solutions at Bank of America Merrill Lynch. Some permanent life insurance policies or other vehicles now also offer long term care benefits riders.
For more information on how Medicare works, what it covers and when to enroll, read "Your Guide to Medicare: 5 Key Questions Answered." For insights on how the cost of health care could affect your retirement strategy, check out "Healthcare Costs in Retirement."
I'm a first-time grandparent. What financial steps could I take to help give my granddaughter a good financial foundation?
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If you have the resources to help out, there are certainly steps you can take. Indeed, more than 30% of Americans anticipate providing financial support to a grandchild, according to the latest Merrill Lynch retirement study. But take some time to plan. "It's important to balance your generosity with your retirement needs," says Merrill Lynch Personal Wealth and Retirement Director Eric S. Williams. Instead of simply giving gifts on special occasions or as needs arise, Williams suggests working with your Merrill Lynch Financial Advisor on a thoughtful giving strategy. Once that is in place, you can choose the form your support will take. One popular way to give the gift of education is through a college savings plan, which can allow assets to grow tax free. Withdrawals, too, are not taxed if they're spent on qualified education expenses as defined by the IRS.
You may also want to reassess your legacy plan if you wish to specifically provide for your grandchild instead of leaving everything to your own children. For more options to consider, take a look at Financial Guide for First-Time Grandparents and Leaving More Than Money
How can I decide how much to save and invest for retirement?
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Deciding how much you want to save and invest for retirement can certainly feel overwhelming. In fact, some people are so daunted by the seeming complexity of the decisions involved that they postpone coming to terms with them and end up not saving at all, says Michael Liersch, director of behavioral finance at Merrill Lynch. So start with the fundamentals. "The most critical factor in developing a retirement strategy is saving and investing in the first place—and as soon as possible, Liersch says. "This can be especially true for women. Women tend to live, on average, five years longer than men — so the amount you save can make an even greater difference in the kind of financial security you'll have in retirement." According to our latest study, 61% of women, compared with only 46% of men, said their biggest retirement worry was "running out of money."
Once you've laid the groundwork by starting a regular investing program through your 401(k) at work or through other tax-deferred investment accounts, says Liersch, you can then move on to the next step: identifying your retirement goals. Rather than arbitrarily choosing some magic number to aim for, think through what you want your retirement to look like—such things as how extravagantly or not you want to live, how much you want to travel, where you want to call home. Your Financial Advisor can then help you think through an approach to investing that you feel comfortable with. For instance, what is your investing personality and what is your tolerance for risk? The goal is to use this thoughtful, intentional approach to craft a life you want for yourself—both now and in the future. For more information, take a look at "A Path to Retirement Success" and "What Women Really Need to Help with Retirement Savings."
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Any information presented about tax considerations affecting financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties. You should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with your personal professional advisors.
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