These 2 retirement concerns have Baby Boomers worried the most

Though many workers look forward to retirement and the opportunity to break free from the daily grind, it's also a worrisome prospect, particularly from a financial perspective. But of all the various retirement concerns today's older workers have, the two most pressing are future healthcare expenses and changes to Social Security that could reduce benefits, according to the Insured Retirement Institute.

If you're worried about paying for medical care as a senior while losing some of the benefits you might one day come to rely on, you're clearly not alone. But rather than succumb to those fears, you can learn how to mitigate them.

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7 things to do before you retire
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7 things to do before you retire

Figure out your stable retirement income.

Take stock of any pension or Social Security income you expect to get during retirement. This stable income should form the basis of your budget, but probably won’t cover all of your expenses. This is your base retirement income that your savings and investments build upon.

Look at your other retirement income sources.

Determine what you can expect to draw down from your personal retirement investments. You may want to meet with an investment advisor to develop a withdrawal strategy. If you want or need to continue working in retirement, you can also include any part-time income you expect to receive for the first few years of retirement.

Make your retirement budget.

Figure out how much you plan to spend during retirement. This can help you get a handle on whether or not you actually have enough money to retire in the coming year.

One good exercise is to figure out the absolute minimum you need to get by. This means paying essential bills including health care expenses, clothing, food, transportation and other essentials. Then, determine your ideal retirement budget. If you could have the retirement you really want, how much money would that take? This lets you add in things like dining out, traveling and other luxuries.

At a minimum you should be able to cover your bare bones budget indefinitely. But it’s better to delay retirement until you can afford the lifestyle you want. Working an extra year or two might help you to finance a more enjoyable retirement.

Check into your investments.

As you approach retirement, it’s a smart time to double check your portfolio allocation. You should be shifting your money into lower risk, lower reward investment options, such as bonds. You can still take some risks, if you can stomach potential declines in your investment portfolio. Just be cognizant of how a downturn in the market could affect your retirement plans.

Figure out your health insurance.

If you are 65 or older you may qualify for Medicare, but you should also look at supplemental insurance policies you might need. If you don’t yet qualify for Medicare because you’re retiring early, be doubly sure you have enough cash flow to cover an individual health insurance policy.

Use your paid time off.

Check into your bank of vacation time or paid time off. You should definitely use this before you retire, unless you can translate those banked days into cash at the end of your working years. If you plan to look for a new place to live in retirement, that’s an especially good use of any banked time off you have available.

Make a plan for your time.

Figure out what you plan to do with your time during retirement. The transition from working every day to a life of leisure can be surprisingly emotional. The best way to fend off boredom and depression is to stay active physically, mentally and socially.

Take some time now to plan a retirement celebration, vacation or to find some volunteer opportunities you can step into as a retiree. This will help smooth the transition into your golden years.

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Preparing for senior medical costs

Without a crystal ball, it's hard to predict how much you'll spend on healthcare once you stop working. After all, just because you're healthy today doesn't mean you won't encounter medical problems in the future. Still, if you're looking for a reasonable estimate, HealthView Services, a cost-projection software provider, says that the typical 65-year-old man who lives an average lifespan will spend $189,687 in today's dollars on medical care in retirement. The typical 65-year-old woman, meanwhile, will spend $214,565, since women tend to live longer.

Clearly, these aren't small totals and they don't even account for long-term care expenditures, which can be catastrophic. But knowing these numbers can help you establish a savings goal that adequately prepares you for what might lie ahead.

Furthermore, if you're worried about long-term care, which, frankly, you should be, buying long-term care insurance in your 50s or 60s can help offset some of the risk you'd otherwise face. It's estimated that 70% of seniors 65 and over will need some type of long-term care in their lifetime, and applying for insurance early will not only increase your likelihood of getting approved, but snagging a health-based discount on your premium costs.

Understanding what's in store for Social Security

Despite the many rumors that abound, Social Security is by no means at risk of going broke. That simply can't happen, since the program is funded heavily by payroll taxes. This means that as long as we have a workforce, there'll be money coming in.

The program is, however, facing a serious shortfall that, if left unaddressed, could slash benefits by up to 23% as early as 2034. On the one hand, that could spell trouble for future recipients. On the other hand, lawmakers have plenty of time to intervene with a fix, so there's no need to worry about your future benefits just yet.

That said, many seniors run into financial trouble in retirement because they go in expecting Social Security to cover all or the majority of their bills. It won't do that. Those benefits, in a best-case scenario (meaning no future cuts), will cover about 40% of the typical worker's pre-retirement income. Most folks, however, need more like 80% of their former earnings to pay their basic expenses, even if their lifestyles are relatively modest.

The solution? Save independently during your working years and look at Social Security for what it is: a means of supplementing an already solid stream of income.

Now the good news is that older workers get a huge opportunity to catch up on savings. Those 50 and over can put up to $24,500 a year into a 401(k) and $6,500 a year into an IRA. Max out the former for 10 years and you'll pad your nest egg by $338,000, assuming your investments generate an average annual 7% return during that time.

Another option? Prepare to work part-time in retirement. This will not only give you an additional income stream, but the peace of mind that comes with knowing that you do have the option to generate cash when you need it. And as an added bonus, working in some capacity as a senior will give you something productive to do with your time, thus helping you avoid spending money on entertainment while simultaneously staving off depression and boredom.

Paying for medical care in retirement and facing cuts in Social Security benefits are two very valid concerns -- but you don't need to lose sleep over them. Save appropriately, and you'll feel much better about the prospect of leaving the workforce for good.

 

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