National Financial Literacy Month: What Baby Boomers Need to Know


JOSEPH COUGHLIN, FOUNDER AND DIRECTOR OF MIT'S AGELAB
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Why does financial literacy matter?
If you are a Baby Boomer, born sometime between the mid-1940s through the mid-1960s, planning to secure your finances may be more critical now than in prior stages of your life.
Retirement planning, for one thing, requires your undivided attention. For your parents' generation, retirement was a time to relax and enjoy the rewards of decades in the workforce. It was about spending quality time with family and friends, enjoying hobbies and other leisure activities, and traveling to faraway destinations. Retirement income was likely to come from a combination of pensions, Social Security and personal savings.

But for you, retirement is likely to be worlds apart from the old paradigm. Among other new challenges to your retirement security, you're faced with the decline of pension plans, a global economic downturn, an uncertain future for Social Security, rising health care costs and increasing life expectancies.

Another concern you may need to address is the financial, emotional and physical strain that can arise when you're helping to support an adult son or daughter who has returned home or when you're serving as caregiver for your elderly spouse, partner or parent. According to AARP, about half of family caregivers contribute financially toward care, spending an average $200 per month, and one in four American families provides an average of 21 hours a week of caregiving support, according to the Gallup-Healthways Well-Being Index. Many family caregivers cut back on their work hours or give up employment entirely, which can do serious damage to their financial outlook.

What can you do now?
There are a few things you can do to manage your financial life today and plan for lasting security.

Take a new look at when and how you will retire
Many Boomers are planning to work longer than they might have previously anticipated. For some, retirement will mean leaving full-time employment in favor of working part-time for at least a few years. There has also been a recent rise in the number of new businesses started by Boomer entrepreneurs. You might consider such options for extending your "saving years."

Plan for longevity
Your generation is expected to live longer than any prior generation. The U.S. Department of Health & Human Services Administration on Aging notes that a 60-year-old today is likely to live three to six years longer than a 60-year-old retiree from 30 years ago, meaning most people currently around that age could live well into their 80s. Also worth noting: Within the 50-plus population, individuals who are 85 and older are the fastest-growing age group.

Increasing longevity raises the risk that your lifespan will extend beyond your "wealthspan," leaving you with insufficient income at some future point. To reduce that risk, you need to account for longer average life expectancies in your retirement planning, bearing in mind that your own life expectancy will be influenced by your health, your family medical history and other personal factors. Depending on the age at which you end up retiring, you should assume you'll need income for another 20 years, 30 years or longer.

Factor in the costs of health care and long-term care
A couple over age 65 is likely to spend an average $230,000 to $250,000 on health care. As health care costs continue to rise at a faster clip than the rate of general inflation, and as many employers scale back or eliminate retiree health coverage, retirees are paying an increasing share of these costs out of pocket. One way you can prepare for such costs is to contribute to a retiree health care savings account that allows you to receive tax advantages while accumulating funds to pay for qualified medical and health-related expenses in retirement.

One expense excluded by most health coverage, including Medicare and Medigap plans, is long-term care – services to help a person carry out essential, daily activities like eating, bathing and dressing. Medicaid does cover long-term care, but only after the patient – and, in many married-couple cases, the patient's spouse – has spent or transferred away almost all assets other than a home and cars. With life expectancies on the rise, chronic diseases such as diabetes and Alzheimer's are increasing the need for long-term care. At the same time, Boomers have fewer children than their parents: Boomers have 1.8 children, on average, compared to 3.8 for their parents' generation. Even the children that Boomers do have may have moved to a different region or state for employment or other reasons. So the chances are real that Boomers will not have a trusted family member to look after their needs, meaning they may require costly home- or facility-based long-term care furnished by professionals.
Long-term care costs can pose a significant threat to your financial security and quality of life. Long-term care insurance helps defray these costs, so you should consider such protection as you near retirement.

Explore alternative elder care solutions for your spouse, partner or parent
Being a caretaker can eventually leave you feeling overwhelmed. To get relief while keeping your loved one at home, consider hiring one or more professional home care providers on at least a limited basis. Depending on the geographic region you live in and the type and degree of care provided, home care rates begin at around $15 per hour. You can also explore options for care outside the home.

Recognize the costs of staying home
For many retirees, home is where they paid a mortgage, built a life and created memories. Although retirement communities abound in the U.S., many members of your generation choose to stay put in their home during retirement.

It's important to weigh the pros and cons of moving to a retirement community versus remaining at home. Consider that even after your mortgage is paid off, staying at home may eventually entail significant new costs and challenges. As time passes, your home is likely to require maintenance and repairs more often. At some point, chronic illness or an accident could render you less capable of climbing stairs. Even preparing meals in a kitchen with high counters and cabinets could become an extreme sport if you suffer from arthritis or fatigue. Remodeling your home to improve accessibility will likely be expensive; a basic stair lift, for example, can cost anywhere from $5,000 to $15,000 to install. Remember to factor such potential expenses into any decision you make about where to live.

Look into getting help from a professional
A professional financial advisor can offer guidance on planning for lasting security and may be able to point you toward sources of counseling on family caregiving. If you're already working with a professional advisor, now may be a good time to schedule an appointment for a financial "checkup." The advisor can help you stay on track toward your goals and answer any questions you have about recent life changes or your current financial well-being.

The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance does not guarantee future results.

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.
 

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