February 2022

Lawyer for Life. Keeping your family healthy, wealthy and wise.
 
 

Numerous studies have shown that Americans’ greatest fear regarding retirement is running out of money. Even so, myths abound about planning for retirement, Social Security, the cost of medical care, and more. Let’s explore the reality behind some of the most common retirement planning myths.

 

SOCIAL SECURITY IS GOING BROKE

Approximately 50 percent of elderly Americans derive at least half of their income from Social Security. For decades, Social Security has collected more than it paid out, with excess income going into the Social Security Trust Fund. According to the Social Security Administration, this fund held $2.91 trillion by the end of 2020. However, due to the retiree population growing faster than the working population, as well as the fact that people are living longer, Social Security is starting to pay out more than it takes in. Without changes to the way Social Security is financed, the trust fund is projected to run out in 2034.

 

Of course, Social Security still collects taxes and pays benefits. According to recent estimates, however, it will only be able to cover 78% of scheduled benefits after 2034. To avoid that scenario, Congress will have to take measures to strengthen Social Security’s finances, as it did in 1983 when the program’s reserves were nearly exhausted. Given the program’s importance to retirees, and the fact that millions of older Americans have been paying into the system for decades, it is highly unlikely Congress would fail to take the necessary steps to protect it.

 

YOU CAN RECEIVE YOUR FULL SOCIAL SECURITY BENEFIT WHEN YOU TURN 62

While it is true that you can begin taking Social Security benefits at age 62, this will lead to a lower monthly benefit than if you wait until full retirement age. What is your full retirement age? It depends on when you were born. If you were born:

  • In 1960 or later, your full retirement age is 67
  • Between 1955 and 1960, full retirement age ranges from 66 and two months to 66 and 10 months
  • Between 1943 and 1954, full retirement age is 66
  • Between 1938 and 1942, full retirement age ranges from 65 and two months to 65 and 10 months
  • Before 1938, full retirement age is 65

Should you take your benefits at age 62? “Expert opinion” differs, but the consensus seems to be that if you are in good health, and you have enough money to live comfortably without Social Security benefits, you may want to delay taking them to maximize your monthly benefit later on.

 

ALL OF YOUR MEDICAL CARE WILL EVENTUALLY BE COVERED BY MEDICARE

Medicare does not pay for all of a person’s medical care. Original Medicare (Parts A and B) covers hospital visits and outpatient care but not dental and vision care. Nor does it cover the cost of prescription drugs. Although Medicare Advantage plans can provide greater coverage, they generally have high premiums. Most Americans fail to include enough money in their retirement budget to cover the expense of annual medical care, let alone the cost of long-term, in-facility care. It is estimated that for a couple aged 65, out-of-pocket medical costs will approach $600,000 over the course retirement.

 

YOU DON’T HAVE TO PLAN FOR RETIREMENT BECAUSE YOU WANT TO KEEP WORKING

This may seem like a reasonable assumption when you have a well-paying and satisfying job, you’re young, and you’re healthy. The reality is quite different. According to a Retirement Confidence Survey, 43 percent of current retirees left the workforce earlier than they expected. While mandatory retirement at a set age was abolished in 1986 by an amendment to the federal Age Discrimination in Employment Act, many of us lose our jobs for other reasons or cannot continue to work due to health problems. Simply put, you may not be able to work as long as you want. The best protection against running out of money in retirement is to have a realistic, detailed retirement plan.

The statistics are rather alarming. In 2005, 50 percent of Americans had a will; today, only 32 percent of us have one. Meanwhile, only one in three Americans over the age of 55 has a durable power of attorney, and a mere 41 percent of this same demographic has advance health care directives.

 

Why is this? According to statistics culled from a range of sources, Americans lack estate plans for the following reasons:

  • 47 percent say “they haven’t gotten around to it”
  • 29 percent think they “don’t have enough assets to leave to anyone”
  • 49 percent don't believe their assets are worth enough to worry about estate planning

Other common explanations include being too busy, thinking estate planning is only for “old” people, and not wanting to think about the inevitability of death.

 

In truth, proper estate planning isn’t just about what happens to one’s assets after death, it’s about taking control of one’s life. Everyone can benefit from having an estate plan. At the very least, your plan should include all of the following documents:

 

LAST WILL AND TESTAMENT

A last will and testament allows you to accomplish a number of important goals. You can name your beneficiaries and specify the assets you want them to receive; name a guardian for your minor children; and choose the person you want to settle your estate (known as the Executor).

 

POWER OF ATTORNEY FOR HEALTH CARE

Also known as a health care proxy, this important legal document allows you to name a person you trust to make health care decisions on your behalf if you are no longer able to make them on your own.

 

POWER OF ATTORNEY FOR FINANCES

A power of attorney for finances is similar in concept to a power of attorney for health care. It allows you to designate another person to make decisions about your finances, such as income, assets, and investments, when you can longer make them yourself.

 

LIVING WILL

This allows you to express your wishes regarding what medical treatments you want, or do not want, in an end-of-life situation. A living will differs from a power of attorney for health care in that it details your specific wishes, whereas a power of attorney for health care allows someone else to make health care decisions for you.

 

HIPAA RELEASE

A HIPPA release lets you choose who can receive information about your medical condition. Hospitals and medical providers can be prosecuted for violating the Health Insurance Portability and Accountability Act (HIPAA) if they reveal your medical information to people not named in your HIPPA Release.

 

Estate planning can help you accomplish many other goals as well. For example, trusts can protect your privacy and enable your estate to avoid the delays and frustration of probate. Trusts can also stipulate when and under what conditions your heirs will receive their assets, which is helpful if you think your children are not mature enough to manage an inheritance. An irrevocable trust can protect your assets against threats like long-term care costs, divorce, creditors, lawsuits, and more.

As you can see, proper planning allows you to seize complete control of your affairs while you are alive and after you pass away.