Two things are essential for a secure financial future: retirement planning and protecting your assets.
Many of us put money into IRAs and 401(k) plans without any clear sense of how much we will need to live well in retirement. Here's how to make your calculations:
Begin by estimating what your expenses will be once you're retired. Don't assume you will need less money to live on. Leisure and entertainment costs, for example, may increase, offsetting a drop in work-related expenses. Consider whether you plan to travel, want to buy a vacation home or take up new activities. If so, add those in.
Next, determine how much your assets - savings, investments, property, etc. - will be worth at retirement. Then figure out how long your assets will last. To do so, consider projected expenses and income. Don't forget to factor in Social Security as well as any retirement benefits from an employer. (The Social Security Administration can provide you with estimated Social Security benefits.) Life expectancy, as well as the return on investment during your retirement years, also should be considered.
FINANCIAL PLANNING
While there are online calculators that can help you estimate the future value of your assets and how long they will last, this might be a good time to consult a financial planner. Once you have a picture of your financial future, you can take additional steps to secure it, such as increasing you're savings, working longer or seeking additional income.
Consulting a financial planner also can help you evaluate the security of your investments. As you get closer to retirement, you'll want to consider how you want to withdraw your retirement savings from a 401(k) or other plan. A lump sum distribution, in which you get a check for the full amount? Or buy an annuity, thus receiving a monthly check for the rest of your life?
As a caregiver, you know how difficult and expensive it can be to find quality care for a loved one. Protect yourself - and your family - by purchasing disability insurance that will help replace your income should you become disabled because of an accident or injury. Good rates frequently can be obtained through your employer.
LONG-TERM CARE INSURANCE
One in five of us will be age 65 or older by 2030 and the U.S. Census estimates that 60 percent of that group will need long-term care at some point.
Long-term care provides assistance to people with ongoing illnesses or disabilities and cognitive impairments. Patients get help with daily tasks such as eating or getting dressed, in addition to more intensive services such as skilled nursing care.
Long-term care insurance can be critical, particularly for those who want to stay in their own homes for as long as possible. Long-term care also can take place in a nursing home or other facility. Medicare, the federal health insurance program for adults 65 and older, doesn't cover long-term care.
According to a 2004 national survey of nursing home and home care costs done by MetLife, the average cost for a nursing home was $192 a day for a semi-private room or $70,080 a year, a figure that will only continue to rise. In fact, in the 2002 MetLife survey, the average cost was $52,000 annually. In both surveys, the average cost for a home health aide was $18 an hour.
The younger you are when you buy long-term care insurance, the lower the premiums, as with life insurance. More and more employers now offer such coverage, and so people in their 40s sometimes are urged to buy them then to lock in lower payments. Even so, some consumer advocates recommend that you wait until at least age 60 before buying it.
Different combinations of benefits and coverage are available. The federal government offers its 20 million employees and retirees (including military personnel) a choice of four prepackaged plans, for instance. The maximum amount their plans will pay for a single day is either $100 or $150, over a period of three years, five years or unlimited. All of their plans include inflation protection (benefits rise over time to cover the increased cost of care).
If buying a policy on your own, review several by top-rated companies and read them closely, paying attention to what you may need to do to qualify for coverage and the range of services offered.
