Retirement Income from Annuities vs Investment Income

As you approach retirement, one tough decision that people need to make is how they should invest the money they have saved for retirement.  Far too many people run through this money during the first few years after they quit working.  This can often be an especially big problem for those retirees who take early retirement.  Many of them do not have a plan to make sure their money lasts the rest of their lives.  Before you start spending your retirement savings, here are some points to consider.

Investment Income for Retirement

Financial planners recommend that you do not take more than 4% per year from your retirement savings, in order to be sure that your savings will last the rest of your life.  If you have saved $50,000 in your IRA, 401K and other accounts, this means you can start taking out $2,000 a year.  In this way, the principal will last 25 years, plus you will have your accumulated interest to draw on.  If you retire at age 65, the money will last the majority of people all of their lives.  With interest rates so low, however, some financial planners have reduced the percentage to 3% a year, if retirees want to be absolutely sure their money will last.  Three percent translates to about $1500 a year on $50,000 in savings.  This is a fixed amount which you cannot increase, even if you experience financial problems as a result of inflation.

Another approach to handling your retirement savings is to re-evaluate every few years how much you can remove.  In other words, start out taking only $1000 a year for the first five years.  Then, gradually increase the amount as you age.  To figure out how much you can take in later years, subtract your age from 100.  Then, divide your remaining savings by that number.  If you never take out more than that amount, your money should last the rest of your life (assuming you do not live past 100).  For example, if you are 75, and you still have $38,000 left in savings, divide that $38,000 by 25.  This comes to $1520 a year that you can remove from savings.  When you reach 80 and have about $33,000, divide that amount by 20 and you can start taking $1650 a year from savings.  This allows you to benefit from increases to your principle from the interest you have received, and helps protect you against inflation.

A third approach is to simply invest your money in the highest dividend paying stocks, Treasury bills, or bank C.D.'s you can find and simply use whatever interest you get, without ever touching your principle.  However, if you choose a bad stock or interest rates dip (as they have over the past few years), you could end up with very little income.  On the other hand, you maintain control of your principle, and you can pass it on to your heirs.

A lot will depend on how much money you have saved and how much you need to live on.  If your current expenses are so high that you are tempted to use more than 4% of your savings in one year, it is very important that you downsize immediately or you will go through your savings much too rapidly.

Annuities to Supplement Your Retirement Income

Annuities are an entirely different way to handle your retirement savings.  You turn your savings over to an annuity company and they pay you a fixed income for the rest of your life.  In most annuities, the monthly amount is locked in.  The amount you are paid is designed to pay you interest and use up your principle.  There are different types of annuities.  One popular example is the New York Life Insurance annuity that is promoted by AARP.  With this annuity, if you do not collect long enough to at least earn back your original investment, the difference will be paid to your chosen beneficiary.  Here are some sample payouts (in 2012) based on the age you are when you make the original investment:

Age 65 -- 5.8%
Age 75 -- 6.9%
Age 85 -- 8.1%

Based on these figures, if a 65 year old invested that same $50,000 in an AARP / New York Life annuity, they would immediately begin receiving $2900 a year in income.  That is far more than the $1000 to $2000 a year they would pay themselves if they decided to manage and draw on their own savings.  However, the amount never goes up.  Another disadvantage is that you can only pass the money on to a beneficiary if you have received less than $50,000 in payments by the time you die.  In other words, if you started receiving the annuity at age 65 and died at age 82, there would be nothing left to pass to an heir.  Many people who collect an annuity feel that they should save a portion of the income they receive in the early years, to help with rising expenses in later years.

This is not meant to be an endorsement of the AARP / New York Life annuity. There are other annuities from other companies that offer different options, and some of them may work better for your needs.  This was only meant as an example, so you can understand how annuities can help you handle your retirement income.

Annuities vs. Investment Income

There is no solution that is the correct one for every person.  A great deal depends on whether or not you hope to leave money to a beneficiary, and how successful you think you will be if you handle your own money rather than turn it over to someone else.  You also need to consider how much income you will need immediately upon retirement.  Many people actually use a combination of two or more of these plans.  Whatever you decide, it is good to have a full picture of the options available to you before you begin recklessly living off your savings during the first few years after retirement.

If you are interested in learning more about ideas for retirement income, financial planning, where to retire, medical issues for retirees, and changing family values, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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Money Saving Tips for Good Healthcare

When it comes to saving money on our health, every little bit helps.  For many retirees, their medical expenses, including doctor visits, eyeglasses and drugs, can make up a significant portion of their income.  Anything they can do to save money on health expenses, medical bills, and exercises classes will help improve their overall health and quality of life.

Whether you are a Baby Boomer who will be retiring in the coming years, or one who is already retired, here are some suggestions from the July-August 2012 issue of the AARP Bulletin that may help you save money and take a step towards better health.

Save Money on Exercise Classes

Until recently, I paid $12 per class to take yoga at a popular yoga school in our neighborhood.  Then I discovered that I could take free yoga classes at a number of nearby locations.  Some of the classes are taught by junior college instructors who come to our retirement community.  Others are taught by retired yoga instructors who want to share their knowledge with others.  When I began to explore what was available, I learned that I could also take free chair aerobics classes, Tai Chi classes, Pilates classes, line dancing, weight training, and more.  If you want to stay in the best physical condition possible, contact your local Community College or Senior Center to see what free classes may be available in your neighborhood.  Be sure to ask local colleges if they have an Emeritus program.  These are classes specifically designed for senior citizens and they may be offered free or at a low cost.

You should also check with your health insurance provider.  Many of them, including a number of Medicare plans, include free or low-cost membership in health clubs in your community.

Save Money on Health Care

AARP also had several excellent suggestions that may enable people to get easier access to affordable doctors, dentists and ophthalmologists. 

Doctor visits:  Go to findahealthcenter.hrsa.gov and find a list of federally funded health centers that provide dental and medical care.  You will pay based on a sliding scale, depending on your income.  In addition, see if you are eligible for low cost health insurance through Medicaid. 

Other dental needs:  In addition to seeing a dentist at a health center, you may also want to contact a local dental school for low cost care.  You can also find resources for affordable dentists at nidcr.nih.gov.  If you are eligible for Medicare, you may want to add a supplemental policy for dental and vision care. 

Eye care:  For those who have reached aged 65, contact EyeCareAmerica.org to see if you qualify to have a voluntary ophthalmologist perform an annual eye exam at no cost.  As mentioned under dental needs, if you are on Medicare, you may also want to add a supplemental policy for dental and vision care.

Healthcare Law:  Since January 1, 2014, the Affordable Care Act requires that nearly everyone should have access to free preventive exams and tests, including mammograms, colonoscopies, and bone density scans.  This will enable many more people to have access to these life-saving tests, as well as others, with no co-pay or deductible.

Clinical Trials: If you have a chronic or serious illness, and you do not feel you can afford treatment, you may want to try a clinical trial.  To find trials that could help you, go to clinicaltrials.gov.  My own husband has been in a clinical trial for his chronic kidney disease for five years and we have both been very happy with the success of his trial.  Of course there are risks, which each person needs to weigh carefully.  However, if there is no other way for you to afford treatment, or if traditional treatments do not seem to be helping you (as was the case with my husband) this is one approach to consider.

Cheaper Prescriptions

Prescription medicines can be a major expense for some people.  I was recently standing in line behind an elderly woman at the drug store, and the prescriptions she was picking up totaled over $700.  I don't know how she felt about it, but I was stunned!

One way to save money is to use generic versions of drugs whenever you can.  In addition, prices differ from store to store.  It is definitely worth it to shop around.  Don't forget to check out Costco and Sam's Club, even if you are not a member.  They are required by law to fill prescriptions for anyone.

The Affordable Care Act is also gradually closing the "doughnut hole" which makes consumers pay the full price for their prescriptions after they have met a deductible.  This will help millions of people.

If you are looking for additional retirement information, including financial planning, where to retire, medical concerns and changing family relationships, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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Important Medicare Tips for Boomers

Baby Boomers are turning age 65 at the rate of 10,000 a day.  When they do, they become eligible for Medicare.  It is extremely important that Baby Boomers prepare for this milestone and sign up for Medicare a few months BEFORE their 65th birthday.  A delay can cause them to spend extra money for Medicare premiums for the rest of their lives!  You should apply for basic Medicare, even if you are still working and you are eligible for insurance through your employer.

Here are a few additional facts that every Baby Boomer needs to know before they turn 65.

Medicare Tips for Baby Boomers

1.  Enroll in Medicare as soon as possible.  You can contact your local Social Security office for an appointment and sign up while you are there.  You may especially want to handle your application this way if you are also applying for your Social Security benefits at the same time.  However, another choice is to apply for your Medicare benefits online in about 10 minutes by using the government website at www.socialsecurity.gov/medicareonly.  You can complete the application once you are 64 years and 8 months old.  You do NOT want to wait until after your 65th birthday.

2.  If you are still working when you turn 65, and you are covered by a medical insurance plan through your employer, you still need to file for Medicare Parts A and B, even if you will not be using those benefits for a few years.  Again, you need to do this before your 65th birthday, so you can save money on premiums when you do begin to rely on Medicare.

3.  Medicare is divided into four parts:  Original Parts A and B, which help cover hospital and doctor bills; Part C, which is an extra Medicare Advantage program you purchase to cover some of the expenses not covered by A and B; and Part D, which is drug coverage.  When you choose a Medicare Advantage plan, or Part C, those plans usually also include Parts A, B and D so that everything is together in one convenient plan.

4.  There are many different Medicare Advantage plans, and most of them will offer informational meetings in your community.  However, one of my friends simply called her current doctors and asked them which Advantage programs they liked the best.  She found there was one particular plan that kept being mentioned, so that is the Advantage program she chose.  You should also know that there are different prices and benefits available for the various plans, too, so shop around.  They are all required by law to provide the same benefits as basic Medicare and most of them provide additional benefits and/or lower co-pays and deductibles than basic Medicare.

5.  Instead of a Medicare Advantage plan, you may wish to purchase a Medicare Supplement plan, instead.  In this case, you have both basic Medicare AND an additional insurance policy.  The premiums are usually higher than they are for a Medicare Advantage plan, but you may find a plan that will result in zero co-pays and your complete choice of doctors in a PPO plan.  This is very appealing to some people who feel it is worth paying extra.  However, for many people, a Medicare Advantage plan that includes their favorite doctors is an excellent choice.  Go to a few informational meetings and decide which choice is best for you ... a Medicare Advantage plan or a Medicare Supplement plan.

6.  If you believe that you cannot afford your Medicare premiums, ask for help from your local Social Security office or through an insurance consultant with the Affordable Care Act.  Low income retirees can qualify for help and I encourage them to take advantage of the assistance programs.

If you are interested in learning more about Medicare, health issues that can arise in retirement, financial planning, where to retire, changing family relationships and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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Exercises for Your Brain

Over the past year, several readers of this blog have asked me about the best exercises for the brain.  I listed a few in an article I wrote called "Brain Activities to Lower Alzheimers Risk," which some of you may have missed.  I'll repeat those exercises here, but I am also going to add some that I have recently heard about.  After all, we need all the advise we can get, if we want to keep our brains in top shape as we age!

In the AAA Westways Magazine for July/August, 2012, there was a short article about brain boosters.  What I particularly liked about their article was the statement, "any type of exercise will help the brain."  That was certainly good news, because most of us do not strictly follow a brain building program! 

Another thing I liked about the Westways Magazine list was the fact that their exercises are designed especially for people who are traveling ... which a lot of us Baby Boomers will be doing, especially after they retire.  By putting all the different exercises together, I've come up with the following list.

My List of Exercises for the Brain

Try cross-training for the brain. (Use the opposite hand to do common activities, such as eating or brushing your teeth)

Practice memorizing lists of words, by using silly word associations.

Do crossword puzzles, soduku or similar word games.

Learn something new and difficult, such as playing an instrument, speaking a new language, or developing your computer skills.

Socialize.  There is a great deal of research that shows it hurts your physical and mental health to let yourself become isolated.  Get out and meet people.  Join a club.  Learn to play bridge. (If it is new to you, it is even better for your brain.)  Make sure you are having fun with other people several times a week.

Do cardio exercises to get the blood pumping to your brain.  Try walking fast, riding a bike or using a treadmill or the exercise equipment at your local gym or hotel fitness center, when you are on the road.  When you are on a trip, you should also walk as much as you can.  The fresh air and exercise are both good for your brain.

Do strength building exercises, like push ups, or use free weights to build strength.  Building muscle also helps keep the blood flowing.

Dance!  Put on some music you love, and dance, dance, dance.  If you enjoy it, sign up for line dancing classes or jazzercise.

Try using two or more senses at once.  Walk up and down the aisle of a train or plane while you are traveling, which requires you to keep your balance, while using your eyes, sense of touch, etc. 

Laugh.  More and more often I hear about the benefits of laughing aloud several times a day.  It is good for our heart, brain and overall health.

Take a few deep breaths several times a day.  Inhale, hold your breath; exhale, hold your breath.  Repeat.

Sleep.  People who have at least seven hours of sleep a night seem to do better on many different types of health evaluations.

Finally, it is important to eat well.  While this is not an exercise, it should be mentioned in any article about brain health.  Include good quality protein and a variety of fruits and vegetables in your diet every day.

If you are interested in more information about your health as you age, financial planning, where to retire, changing family relationships and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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