Paying for the golden years
Year after year you work at least 40 hours a week. One day, it will be time to quit punching the time clock and dedicate more of the day to taking it easy.
You might be mentally and physically ready for retirement, but will you be ready financially?
The key is to start saving early and often.
"Saving a little, earlier in your career is better than saving later," said Michael Stajduhar, a senior vice president and financial planning specialist at BB&T Wealth Management. "It's the magic of compound interest."
Investing in stocks for the long term and socking money into a 401(k) savings plan each paycheck, especially if your employer matches your contributions, are great ways to squirrel some money away for retirement.
A retirement income should consist of a pension, retirement accounts like a 401(k) or IRA, pension and personal savings that include stocks, savings accounts, CDs and bonds. Ideally, people should use up their personal money and inheritance in their 60s and tap into the 401(k) and IRA in their 70s, Stajduhar said.
It's important for people to meet with a financial adviser to see if they are on target to meet their retirement income goals, Stajduhar said. A good retirement budget is about 70 to 80 of one's pre-retirement expenses.
The amount saved for retirement though, depends on the retiree's future lifestyle. It also depends on the retirement year.
Stajduhar said many of his clients retire around 62. He's seeing more people retire earlier than they did 20 years ago because they're making more money and reaping the benefits of a stock market that did well between 1982 and 2000.
Census statistics show about 2.5 percent of West Virginia's workers were 65 and older in 2002, up from 2.1 percent in 1997.
The longer someone works, the fewer years they need to fund from their retirement savings. The average life expectancy in 2002 nationwide was 77.4 years, according to the Centers for Disease Control.
Retirement may mean no more work-related expenses like buying and maintaining a business wardrobe or paying for parking garages. But, new expenses will surface, like more leisure travel and increasing health costs.
People typically spend less as they grow older, Stajduhar said. But, a person's final couple of years may be their most expensive because of medical costs, which could include a nursing home or in-home health care.
The average cost of a nursing home in West Virginia is $140 a day, or $4,200 a month, said Dee Webb, with the West Virginia Healthcare Association. The average base cost of an assisted living facility in West Virginia is $2,276 a month, according to the 2004 MetLife Market Survey of Assisted Living Costs.
"People think Medicare is going to pay for services. Medicare and Social Security won't pay for the services," said Rowena Sizemore, a geriatric care manager in Parkersburg.
Medicare only pays the full cost of a skilled nursing facility for up to 20 days, Sizemore said. For the next 80 days, it only pays a portion if the patient meets skilled nursing criteria.
"It's not likely people will meet Medicare criteria to receive skilled care for the full 100 days," she said. After those 100 days, Medicare stops paying and the person has to pay for the services out of their pocket, use secondary insurance or go on Medicaid.
While the qualifications are tricky, the general rule is, people who receive less than $1,692 in income a month and have less than $2,000 in assets are eligible for Medicaid to pay for their nursing home or in-home care coverage, said Brenda Crawford, of the West Virginia Bureau for Children and Families. Those income and asset levels don't include the spouse's income, she said.
Wanda Bennett hopes she never needs long-term care.
"I'm very fortunate to have my health and still be able to think good," said the 75-year-old from Parkersburg.
But, if she does need it, she's prepared. She set up a trust nine years ago and has invested in CDs, savings bonds and an individual retirement account throughout her life.
"I just think it's something very important in your life," Bennett said about preparing for her future. "I have no children and when I lost my husband 11 years ago, you take a different look on life."
In 2000, 362,795 people 60 and older lived in West Virginia, according to the U.S. Census. About 11,000 West Virginians live in assisted living or nursing home facilities, Webb said.
It's tough to know who will need long-term care, but it's important to be prepared, said Tom McMillan, who sells long-term care insurance with Silverstein, Maddox, Wallace & Associates in Charleston. Someone can have the perfect will and estate plan, but if any long-term care needs pop up, all that planning can fly out the window.
Long-term care insurance can pay for nursing homes, assisted living facilities and in-home care.
People in their early- to mid-40s should start considering this type of insurance, McMillan suggests. As people age there are more chances for health problems, which ratchets up the price.
Those interested in long-term care insurance should examine nursing home, assisted living facility and home health-care costs and also evaluate their assets.
Each policy has different costs and benefits. People should buy the best policy they can afford, McMillan said. The plan should be qualified, which means it's more standard and isn't subject to taxes when the policyholder receives it benefits. People should also select a multibillion-dollar insurance company with deep pockets in the event they should have to make a claim on their policy, he said.
Some policies pay policyholders back if they don't use it. But others, like car insurance, don't refund the premium payments if they don't use the service.
McMillan tells his clients he hopes they never have to use the insurance. But, if they do, they'll be glad they have it, he said.
"It's piece of mind."
To contact staff writer Jennifer Ginsberg, use e-mail or call 348-5195.
How to prepare if you’re quickly approaching or have reached retirement and realize you haven’t saved enough money:
1. Increase rate of savings
2. Invest aggressively to get a higher rate of return
3. Reduce retirement income goal
4. Sell or downsize personal assets like a house to free up cash
5. Work longer so there are more years to save and fewer years to fund
Source: Michael Stajduhar, a senior vice president and financial planning specialist at BB&T Wealth Management.
5 factors to consider when choosing a long-term care insurance policy:
1. Length — How long do you want the policy to work?
2. Coverage amount
3. Elimination period — How many days can you pay for care until the policy kicks in?
4. Inflation protection — How will you pay for care as the price continues to increase?
5. Equal coverage for nursing home and in-home care
Source: Tom McMillan, who sells long-term care insurance with Silverstein, Maddox, Wallace & Associates in Charleston