And that’s an argument for not plowing everything into “safe” bank certificates of deposit (CDs) or high-quality bonds.
Right now, a series of manufacturing and supply chain headaches is causing inflation to spike to an annual rate above 5% (as if anyone who’s filled a gas tank or shopping cart needs this pointed out).
But let’s consider that this inflation spurt isn’t permanent, and that we may settle into an average annual inflation rate of “just” 3%. That’s still way more than the 1% you’re lucky to get on a bank CD; similarly, a 10-year Treasury note has a current yield of less than 2%.
Earning less than the rate of inflation over a 25- to 35-year retirement will make your later years more stressful, as you will need to withdraw more of your portfolio to cover the higher prices for goods and services.
Two strategies for dealing with inflation in retirement are to keep a portion of your investments invested in stocks, and (here we go again) to consider delaying when you start Social Security payments.
3. Make it to 65, and your healthcare is free.
If only. Medicare covers a lot of your health insurance costs, but the program is not free. The minimum per-person monthly premium for a required part of Medicare (Part B) is $148.50 this year. Lower-income enrollees won’t pay that much, or anything, but higher income enrollees will pay even more.
Moreover, there are copays and coinsurance when you actually use Medicare. An analysis by J.P. Morgan estimates the monthly cost, adding up premiums and deductibles and out-of-pocket costs for someone enrolled in Original Medicare, is $479 this year. Enrollees in Medicare Advantage pay lower upfront premiums, but if they actually need care, copays and coinsurance can add up to even more.
Clearly, budgeting for your retirement healthcare out-of-pocket costs is imperative.
4. Medicare covers long-term care.
Nope. There is coverage for a limited stay in a skilled nursing home following hospitalization. But there is no coverage for having at-home assistance, nor does Medicare cover assisted-living costs.
Sitting down with a financial planner now to work through how you might plan for potential long-term care costs can make for less stress (yours and your adult kids) down the line.
5. You will be just as mobile at 85 or 90.
The stairs into your front door and the flight up to your bedroom that are a non-event now can become an impediment later on. But if you are intent on staying in your home through retirement, now is the time to game out how comfortable it will be 25 years down the line. Tackling age-in-place remodeling projects is something to do long before any need arises.©2021 Rate.com. Visit at rate.com. Distributed by Tribune Content Agency, LLC.