If you're 64 and thinking about retiring, here's what you need to do today

If you’re around the age of 64, you almost certainly remember the heyday of the Beatles. Their 1967 song, “When I’m Sixty Four,” laments getting older, pondering, “Will you still need me, will you still feed me, when I’m sixty-four?”

Fortunately, our attitudes about aging and what is considered “old” have evolved since the '60s. Today, you’re considered relatively young at 64 — in part because so many people are living longer, more active lives.

Nearly one in four Omaha households have someone age 65 or older. That’s a 37 percent increase in the number of seniors, according to census data from a decade ago. In metro Omaha that’s about 85,000 seniors. There’s more to come: The largest number of people will turn 65 in 2025.

Most will be eligible for Medicare. Most will be surprised to discover that Medicare doesn’t provide the kind of coverage they were used to under their employer’s health plan. It can be eye-opening to find out dental, vision and hearing benefits are not part of basic Medicare.

So if you’re 64, thinking about your retirement, what should you do?

Enrolling in Medicare

Some insurance companies will start contacting you about their Medicare products a year in advance — which is good, because there is homework to do.

Answers to two basic questions will help you begin:

1. Do you need to enroll in Medicare at your 65th birthday?

2. How do you choose the right Medicare coverage and avoid penalties?

Regarding the first question: If you don’t have health insurance through your employer or another source, you may want to enroll in both Medicare Part A and Medicare Part B on your 65th birthday. If you do have employer coverage, you may want to sign up for just Part A. There’s no monthly premium.

“People get confused, thinking the deadline to enroll for Medicare is the same time as when they need to apply for Social Security,” said Dr. Debra Esser, chief medical officer, Blue Cross and Blue Shield of Nebraska. “They are different. If you were born between 1943 and 1954, retirement age for Social Security purposes is 66, but Medicare enrollment is at 65.”

In answer to the second question — how to avoid enrollment penalties — allow yourself plenty of time. Most experts advise three months before your 65th birthday. The penalties start if you don’t enroll when you’re first eligible. If you’re late enrolling for Part A you could pay a 10 percent penalty; for Part B, the penalty could go up 10 percent each year for as long as you are enrolled. In addition, Medicare Part D (prescription drug benefits), assesses a penalty based on the number of months you could have had coverage but didn’t sign up.

OK, so you’re enrolled in Medicare. But remember, Medicare doesn’t pay all your costs. You’ll need to purchase additional coverage to fill in the gaps. It’s important to pick the plan that best suits your coverage needs, budget and lifestyle. It’s also important to get advice from coverage experts, such as an agent or a broker.

“My advice: Don’t be afraid. There are many resources available and people more than willing to help you,” Esser said.

Medicare Supplement

Medicare Supplement insurance (also called Medigap) can be purchased from a private insurance company. Medicare Supplement covers what basic Medicare doesn’t, such as co-payments, deductibles and health care outside the United States. Supplements don’t cover long-term care, dental, vision, hearing and private-duty nursing.

Medicare Advantage

Medicare Advantage plans are often called Part C and are offered by private insurance companies approved by Medicare. The plans often provide benefits for routine vision, dental and hearing services and prescription drugs. If you’re thinking you want a Medicare Advantage Plan, you must be enrolled in both Medicare Parts A and B.

Bottom line: Do your homework and get expert advice. That way, when you’re 64, with some preparation, you’ll be ready to make decisions about your Medicare coverage with confidence.

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Do I have enough saved to cover my spending in retirement?

(CNNMoney)Most retirement projections seem to be based on how much income you'll need in retirement. But shouldn't my planning be based on how much I'll actually spend after I retire? How do I figure out what my spending might be and whether I'll be able to meet my spending needs?—Jeff

You're right. Ideally, you would want to base your retirement planning on expenses, or how much it will actually cost you each year to live the post-career lifestyle you aspire to. Knowing that, you could then better estimate how large a nest egg you'll require, how much you'll need to save on a regular basis during your working years to build that nest egg and how many years your savings stash is likely to support you in retirement.

But when retirement is decades away, it's tough to get an accurate fix on what your future living costs will be. After all, that figure can vary significantly depending on such difficult-to-pin-down factors as how healthy you'll remain as you age, which can determine how much you'll spend on health care; whether you'll pay off your mortgage and other debt before or soon after you retire; whether you'll have an active retirement that involves spending considerable sums on travel and entertainment or live a more modest lifestyle closer to home, etc.

And in fact research shows that the amount retirees think they'll spend and how much they wind up shelling out can be quite different. According to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index, more than a quarter of retirees said their daily living expenses were higher than they expected and nearly 40% said they underestimated health care costs.

Related: Late start on retirement saving? Here's how to play catch-up

So instead of trying to forecast what our actual expenses will be 20, 30 or more years down the road, we rely on "replacement ratios," or the percentage of our pre-retirement income we must replace to maintain our standard of living in retirement.

By going to a retirement income calculator and plugging in the percentage of income you think you may need to replace — somewhere between 70% and 90% is typical — you can come away with a decent sense of how much you'll need to save each year to build a nest egg that's large enough, with help from Social Security and any pensions, to generate sufficient income in retirement.

Make no mistake: these replacement ratios are still estimates, albeit ones that are grounded in research based for the most part on spending data from the Department of Labor's Consumer Expenditure Survey. But these rules of thumb can at least provide a reasonable framework for planning in the face of many unknowns, allowing you to set a savings target and then periodically revisit the calculator to monitor whether you're making progress toward your retirement goal. If you find that you're not making headway, you can see how moves like saving more, investing differently, retiring later or ratcheting down your retirement lifestyle might improve your outlook.

Once you're in the home stretch to retirement, however — say, within 10 years of exiting your job — chances are you'll have a better handle on how your retirement spending might shape up. At that point, it's a good idea to do an actual retirement budget. You could go old school and just jot down what you think you'll spend in various categories using a pencil and a legal pad. But it's probably more convenient (and easier for making revisions later on) if you use a budgeting tool or worksheet online.

One such tool is the Retirement Expense Worksheet that giant asset manager BlackRock offers free online. You can enter upwards of 50 separate expense items, ranging from essentials such as food, housing, transportation and health care to discretionary outlays like travel, entertainment, gifts and charitable contributions. Aside from an overall total, the worksheet gives you a tally for both your essential and discretionary items, a breakdown that can come in handy for gauging how much leeway you have for reducing expenses later on should that be necessary.

Once you're satisfied that you have a relatively firm grasp on what your retirement expenses will be, you can then plug that figure into the calculator instead of a replacement ratio to gauge whether you've got enough saved for retirement (and, if not, estimate how much you'll need).

Related: Where can I find no-risk investments?

Of course, unless you're clairvoyant, the retirement budget you come up with isn't going to be 100% accurate. Some expenses will come in higher than you expect, others will be lower and you'll no doubt have to deal with some expenses you didn't anticipate at all. Life isn't as predictable as a spreadsheet.

But the idea is to be as accurate and thorough as you can, and then revise your budget every year or so based on reviews of actual spending as you near and enter retirement. To the extent that in the years leading up to retirement you can do some "lifestyle planning," or thinking seriously about how you'll actually live after leaving the workforce, you should be able to better anticipate the costs you'll face after you retire.

Fact is, by its nature retirement planning doesn't lend itself to certainty. There are too many unknowables — how much your earnings will grow during your career, whether you'll be able to stick to your savings regimen, what size returns the financial markets will deliver, what share of those returns you'll capture with your retirement investments.

You can't even be completely sure when it comes to such major assumptions as when you'll retire (EBRI's Retirement Confidence Survey shows that nearly half of retirees left the workforce earlier than planned, usually because of health problems or downsizing) and how long you'll live (although this longevity tool can at least help you assess the probability of living to different ages).

But if you take the approach I've outlined above and do some fine-tuning periodically, you should have a reasonable shot at ensuring that your nest egg along with Social Security and other resources will allow you to live an acceptable lifestyle as long as you're around.

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7 Myths About Finances in Retirement

In many ways, retirement is unknown territory. After spending several decades in the workforce, bringing in income and saving for the future, you now need to spend and manage that money.

Stepping into this new phase of life sparks change for your finances and lifestyle. “It is hard to grasp the concept of not having that paycheck to receive every other week,” says Dawn-Marie Joseph, president and founder of Estate Planning & Preservation in Williamston, Michigan.

For most individuals, regardless of the time and energy you've spent planning for this period, there will still be some surprises once you enter retirement. Here are some of the most common financial myths about retirement, as well as the truths and realities behind them.

1. Medicare will cover everything. You become eligible for Medicare the month you turn 65, but it’s important to remember there will still be ongoing health care expenses. “Medicare only covers some services for free,” says Jennifer Myers, a certified financial planner and president of SageVest Wealth Management in McLean, Virginia. Unless you qualify for Medicaid, you’ll need to budget for costs such as premiums, copays and deductibles.

You’ll also likely need a Medicare supplement plan, which can be affordable but not free. And keep in mind Medicare only provides some coverage for long-term care. You may want to think about purchasing long-term care insurance to help pay for additional services.

[See: 10 Medical Services Medicare Doesn’t Cover.]

2. I will only need 70 to 80 percent of my pre-retirement income. While your list of expenses won’t include job-related costs like an office wardrobe and commuter expenses, it could easily be filled with other items. You may find you want to spend money on activities such as traveling, eating out, going to the theater or taking up a new hobby. “People are healthier and more active in today’s society than generations past,” Joseph says. “This means they need more money to go out and do what they would like in their retirement.”

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3. Taxes will nearly disappear in retirement. Since you’re no longer bringing home a paycheck from working each month, it can be easy to think that taxes will decrease in retirement. Even though taxes can fluctuate greatly depending on where you live and your overall financial situation, you’ll likely need to plan on paying taxes each year.

Some states exempt pension and Social Security payments as taxable income, but they’re still largely subject to federal taxes. Another factor to consider is the amount you have in qualified retirement plans, such as IRA and 401(k) accounts. “Distributions from these accounts are generally fully subject to ordinary income taxes,” Myers says.

[See: How to Pay Less Taxes on Retirement Account Withdrawals.]

4. Downsizing will lead to further savings. A common retirement transition plan involves moving out of the family home and into a smaller place. You might assume this shift will lead to fewer home-related costs, but that’s not always the case. For example, if you move from a large home in the suburbs to a smaller place downtown, you may find the new urban location to be more expensive.

Some retirees come to regret the shift to smaller spaces, as it can be difficult to host family gatherings and accommodate grandchildren. And it can be pricey to move back into a larger home if you regret downsizing. “Reversing a house downsize will inevitably be costly, and retirees may find themselves buying back into an expensive suburban market that they had previously sold out of,” says Michelle Herd, senior client advisor at TFC Financial Management in Boston.

Rather than selling quickly, take some time to consider your lifestyle before downsizing. “This provides some flexibility in terms of getting to know how time in retirement will be spent, where it will be spent and with whom,” Herd says.

5. $1 million will provide a comfortable retirement. For years, building a $1 million nest egg was often considered a solid goal for retirement. However, that figure may no longer be accurate, due to longer life expectancies, increasing costs and active lifestyles. “There’s no one-size-fits-all amount of how much to save for retirement,” Myers says. “If you’re accustomed to a frugal lifestyle or you’ll be receiving a healthy pension, $1 million may be plenty to live on. If not, there’s a high chance it could be inadequate.”

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6. I can withdraw 4 percent each year from my portfolio. The 4 percent rule refers to the concept of withdrawing 4 percent from a retirement account each year. The idea is that by following this strategy, you’ll be able to maintain a steady stream of income while keeping the funds sustainable for decades. “This may have been a reasonable standard in years past, but with increased life expectancy and recent challenges, many folks are largely underfunded for retirement,” says Tom Terhaar, an investment consultant with Conrad Siegel, a mid-Atlantic investment advisory firm. “Going forward, if individuals continue to subscribe to this rule, they may find themselves short of their goals.”

A better approach may be to consider withdrawing a lower percentage, such as 3 percent, each year. Talk to your financial advisor to fully evaluate your situation and determine the amount that will work best to cover your needs and sustain funds. You may also want to consider taking on part-time work to help avoid the risk of withdrawing too much from your portfolio during the early years of retirement.

[See: The Best Places to Retire in 2018.]

7. I’ll save money by aging in place. Once you’ve settled in the home where you want to spend your retirement days, it may seem that avoiding a move to an assisted living center or nursing home will lead to substantial savings. Yet there could also be plenty of expenses to stay in your place and receive the right level of care. You might need to make modifications, such as putting in a bedroom on the main floor, adding a wheelchair entrance or bringing in home aides to help with cleaning or overseeing a health condition. “While you may be saving money by staying in your home, you could be spending even more on the care front,” Myers says.

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http://www.spotlightseniorservicestucson.com

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10 Truths About Retirement

10 Truths About Retirement

Retirement has changed a lot in recent years, and may be far different from what you expect. You might spend two or more decades in retirement, and you will be responsible for paying your bills and setting up a fulfilling lifestyle. Here are ten truths about today's retirement:

1. This is not your father's retirement. The days of the 40-year career with the same company are gone. The gold watch is gone. In many cases, the pension is gone as well, or was converted to a self-managed IRA or 401(k) plan. The first truth of retirement is that we are responsible for our own finances.

2. You'll probably live longer than your parents. The average life expectancy for a 65-year-old is 19 years, and many of us will live another 25 or 30 years. The good news: We have more opportunities to pursue new dreams, reinvent ourselves or just bask in the glow of a well-lived life. The bad news: You have to pay for it.

3. Medicare does not cover all your health care costs. Medicare is the government health insurance program for people age 65 and over. The program covers a lot of the services older people require, but you also need supplemental insurance to help pay doctor's bills, prescription costs and dental expenses. And even supplemental insurance doesn't pay for everything, especially when it comes to hearing aids, eyeglasses and a host of other age-related health expenses.

[See: 10 Medical Services Medicare Doesn’t Cover.]

4. You need to take care of yourself. Retirement is the time when all the bad habits of your youth come home to roost. But it's not too late to give up smoking, start eating right and begin an appropriate sports or exercise program. A healthy diet and regular exercise routine are the key factors for keeping our bodies running smoothly and painlessly into our 70s and 80s.

5. You still have to plan for the future. Retirement is not a constant. There are many stages of retirement, from an active early retirement to perhaps needing personal care for daily needs later in retirement. So think about your living quarters, and whether you want to still be climbing stairs or taking care of a yard a decade from now. Consider long-term care arrangements for your later years. Plan your investments not just for the next few years, but for a longer span of time that may involve periods of inflation or another recession.

6. There's more to retirement than money. You can have all the retirement funds in the world and still be bored, lonely and frustrated. Conversely, you don't need a huge retirement portfolio if you're ready to make some major lifestyle changes, such as living abroad, sharing living quarters or doing something unconventional that you find exciting, creative or fulfilling. In retirement, even more so than in your younger years, money is not an end in itself, but a resource to help accomplish the things you want to do.

[See: 8 Things That Matter More Than Money for a Happy Retirement.]

7. Time is of the essence. The retirement paradox is that we are more aware that time is ultimately limited, yet we have more time now because our days are not crammed full of work or family responsibilities. So there's no room left for procrastination. If you have a dream, now is the time to pursue it, whether it's traveling to the seven wonders of the world, finding a peaceful spot on a far-flung beach, starting your own business or reconnecting with children and grandchildren.

8. There's no time for regret. None of us have come this far in life without making a few mistakes. Don't let them haunt you. The past is over and done with. There's nothing you can do about it now. Just accept what happened and let it go.

9. Talk to your loved ones about end-of-life decisions. It's not a pleasant task, but it needs to be done. Most experts recommend a health care proxy so someone else can make crucial medical decisions if you are incapacitated. A power of attorney allows someone else to use your money to pay your bills. And a will directs what will happen to your leftover assets when you die. It's better that you make that decision rather than let the government do it for you.

[See: 10 Retirement Rites of Passage.]

10. You are responsible for your own retirement. You will need to find a way to pay your bills without income from working in retirement. Beyond that, perhaps for the first time, you are now in charge of your own life. You no longer answer to a boss and are no longer tied down by family responsibilities. And so the most important truth of all is that the retirement you get is the retirement you've prepared for. Retirement is, literally, a once-in-a-lifetime opportunity. So go ahead and make the most of it.

Supporter and Sponsor of SPOTLIGHT Senior Services & Living Options

http://www.spotlightseniorservicestucson.com

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Using Your Home Equity for Aging in Place

A new Bankrate survey says 62 percent of homeowners never plan to move. If you’re one of those who’ll be aging in place, you may be considering using your home equity to help do it, by taking out a reverse mortgage, a home equity line of credit (HELOC) or a cash-out refinance of your first mortgage. That might be a good idea, but you’ll want to know the pros and cons before making your decision.

Five experts offered smart advice about using home equity (the difference in the market value of your home and how much you owe) to age in place at a Next Avenue/National Reverse Mortgage Lenders Association (NRMLA) webinar I moderated Tuesday (you can watch it above). They answered questions from Next Avenue readers and some of the nearly 200 webinar attendees. Below, I’ll pass along their key points.

The panelists:

• Steve Irwin, executive vice president of National Reverse Mortgage Lenders Association
• Marguerita Cheng, a Certified Financial Planner, Retirement Income Certified Professional and CEO of Blue Ocean Global Wealth
• Nick Clements, co-founder and general manager of the personal finance site Magnify Money
• Amy Ford, senior director of home equity initiatives and social accountability for the National Council on Aging
• Dan Hultquist, co-chair of the National Reverse Mortgage Lenders Association education committee, vice president of education and organizational development at Live Well Financial and author of Understanding Reverse, a book on reverse mortgages

Home Equity and Personal Wealth

Irwin noted that home equity often represents the largest component of personal wealth. In fact, he added, homeowners age 62 and older (the population eligible for reverse mortgages) have $6.6 trillion in home equity.

“There are real opportunities to responsibly leverage your equity to help fund retirement,” said Clements. “But it can be confusing.” Clements urged keeping your eyes open before you open your wallet. “There are many actors with significant profit motives who can make a lot of money when you take out a loan,” he said.

Cheng advised potential borrowers to “take a holistic approach to financial planning and recognize that the home and home equity is an asset to consider in a comprehensive financial plan.” She echoed a point that American College of Financial Services taxation professor Jamie P. Hopkins made in his new book, Rewirement. Hopkins wrote: “Taking strategic measures to deal with an existing mortgage can also improve a retiree’s financial situation.”

Different Types of Debt for Aging in Place

You’ll want to be sure to understand the differences between the way a reverse mortgage, a home equity line of credit and a cash-out refinance work.

With a reverse mortgage like the Home Equity Conversion Mortgage (HECM) insured by the Federal Housing Administration (FHA), a lender lets you borrow against your home equity tax-free while you live in the home and interest accrues. The current interest rate is roughly 4.7 percent. You can take the money as a lump sum or a line of credit to tap when needed (for say, a home improvement to age in place or a financial emergency). The FHA insures reverse mortgages for homes with assessed values of up to $679,650.

Before getting a reverse mortgage, you’ll be required to meet with a U.S. Department of Housing and Development-certified counselor, who will review the pros and cons.

You don’t need to own your home free and clear to qualify for a reverse mortgage. In fact, Hultquist said, “the vast majority” of borrowers use the loan proceeds to pay off an existing mortgage. You can also buy a home using a reverse mortgage through what’s known as the HECM for Purchase program, Hultquist noted.

You aren’t required to make principal and interest payments on a reverse mortgage while you’re living there, but if you don’t, the balance will grow over time. The loan must be paid off after you move, sell the home or die.

You don’t need current income to qualify for a reverse mortgage, Hultquist said, but you must pay property taxes and homeowners insurance on time or you will lose the home and the loan. A lender will evaluate your ability to make those payments based on your credit history, the timeliness of your property tax payments in the past and your “residual income” (your monthly income after debts and expenses). If the lender has concerns, it may withhold a portion of the reverse mortgage proceeds (known as a life expectancy set-aside) to make the property tax and insurance payments. Generally speaking, the higher your property taxes and the younger you are, the more the set-aside amount would be.

The maximum size of a reverse mortgage depends on the home’s appraised value, the age of the youngest borrower and current interest rates, Irwin said.

You’ll never owe more than the value of the property. You will, however, owe closing costs, which can be paid upfront or added to the amount of the loan. A lender can charge an origination fee of the greater of $2,500 or 2 percent of the first $200,000 of your home’s value plus 1 percent of the amount over $200,000, with a maximum fee of $6,000. Some lenders waive or reduce the fees on certain products, NRMLA says.

There’s also a mortgage insurance premium, or MIP. Due to new rules from the Trump administration, the MIP paid upfront now equals 2 percent of the home’s appraised value or the FHA lending limit, whichever is less, and the annual MIP fee is 0.5 percent of the outstanding loan balance. Other closing costs include: an appraisal fee; a credit report fee; a flood certification fee; an escrow, settlement or closing fee; a document preparation fee; a recording fee; a courier fee; title insurance; a pest inspection fee and a survey fee. The total of these can easily exceed $1,000.

“If you don’t want to stay in your home for a long time, a reverse mortgage may not be right for you,” Hultquist noted.

Cheng also said that although a reverse mortgage won’t impact your Medicare coverage, it’s possible that the loan could prevent you from qualifying for Medicaid.

Unlike a HELOC, a reverse mortgage can’t be frozen or reduced just because property values have dropped. “I lost my HELOC due to what happened to property values in 2007-2008,” said Hultquist.

All About Home Equity Lines and Refis

A home equity line of credit, Clements explained, is a revolving line of credit that uses your home as collateral. The current interest rate is between 4.5 percent and 6 percent if you have good credit. “Banks have really tightened up since the 2008 financial crisis,” said Clements. “Rates vary a lot, so it pays to shop around.”

HELOCs have adjustable rates. “Given that we live in a rising rate environment, that’s something to keep in mind,” said Clements.

Typically, a HELOC has an initial drawdown period of 10 years with interest-only payments. After that, the loan converts to an installment loan.

You’ll need a strong credit score and enough current income to meet your living expenses in order to qualify for a HELOC, Clements added.

When deciding between a HECM or a HELOC, Ford advised, “think of the key product features and the value you can gain from them.”

A cash-out refi, Clements said, is underwritten like a new mortgage, so the interest rate will be what you’d pay for a standard mortgage. One caution: “If you are almost done paying off your mortgage, a cash-out refi will reset the term of the loan to 15 or 30 years,” he said.

Useful Resources on Home Equity and Reverse Mortgages

Ford wrote a useful article on the National Council on Aging site to help you compare alternative forms of debt for aging in place: “Considering Tapping Your Home Equity? Compare Your Options First.” Her group also has a good, free online booklet about reverse mortgages, Use Your Home to Stay at Home.

You can find information about reverse mortgages on the NRMLA site and the site of the federal Consumer Financial Protection Bureau, too.

What About the Kids?

The last question the panelists fielded may have been the most ticklish: How do most kids feel about their parents tapping into their equity and why?

“This is a tough personal decision that families will have to consider,” said Irwin. “But NRMLA research has found that 90 percent of adult children prefer their parents age comfortably in place.”

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