As a young person, we prepare and plan for our retirement and long for the glorious golden days ahead without any tribulations. Unfortunately, we are not the only ones that want to live off of our nest eggs. Scamming seniors has now become the “Crime of the Century”.   Fraud among elders is not limited to the aging widow/widower anymore; scammers are also targeting the prosperous retired business owners or executives. Due to the age and intelligence of our senior generation, most are too embarrassed to report if they have been scammed. In fact, the majority of these cases go unreported to the authorities.  After being scammed, seniors not only are left drained financially but also spiritually and emotionally, which then affects their quality of life in the process.

 

Seniors in North Carolina alone may have lost upwards of $1 million of the $2.9 billion reported nationally in losses. Because of the awareness now of Elder Financial Exploitation, more cases are being reported annually.  Just last year, 3,600 cases were reported between January through June in North Carolina. The reason we are seeing so many cases is due to the aging population living longer, which means seniors have more time to amass wealth. According to the Social Security Administration, if a man reaches the age of 65, his life expectancy, on average is 84.3, and for women, the average age is 86.6. And these are just average statistics, so the senior population can exceed beyond their 80’s! By the year 2050, it is estimated that seniors over the age of 80 will make up 20% of our population.

 

With the expectation of more seniors and long-term care facilities in the future, this increases the probability of more devious scams and abuse to seniors. The younger generation will need to be equipped and prepared to handle these situations.  Sadly, scamming seniors are just one of the many variations of elder abuse. There are many other types of abuse such as physical abuse, neglect, and malnutrition just to name a few.  I’m sure that everyone has heard about the phone and internet scams that are rampant among this demographic.  The scenario in which a young person calls a grandparent in the dead of night, frantically needing funds to get out of some dire situation- be it jail or some faraway place.  Their parents just can’t know about it or they’ll never live it down.  If only the trusted grands will help them out by wiring money or giving out their credit card information over the phone.  Of course, any elderly person awoken in the middle of the night to come to the aid of a desperate child doesn’t stop to think about the validity of the call, they just respond to the need and have their funds stolen for their efforts.

 

This is just one example of the latest scam.  I’ve had clients that are very savvy, but when in a lonely or slightly confused state can become a victim all too easily.  In one such occurrence, I had a client that lived in a retirement community.  He was a widower and his children lived out of state.  He was hounded by telemarketers and would order cases of whatever they were selling. When asked why, his reply was that he liked talking to them!  He was lonely and they talked to him all the time because he bought things from them.  Another client has a caregiver that sits with her just to prevent falls and the like.  The caregiver takes her debit card to buy groceries, etc.  The client is very capable of checking the receipts to ensure that there are not extra purchases; however, she is very softhearted and hates to say no when the caregiver hints that she needs money for things.  She is constantly paying her past due rent and utility bills.  The caregiver doesn’t ask outright for her to do so, but she tells her all of her woes and the client offers.  This is definitely a form of abuse.  I had another client that did not know how to write a check.  Her husband had always paid all of the bills and handled all of the finances.  When he passed, I had to physically show her how to write a check.  Luckily, she had us to rely on to assist her with her finances and to show her how to create a budget and to manage her assets.  This is not limited to the female of the relationship by any means.  I have had to do the same thing to the husband in a relationship as well.  The key is protecting our seniors and helping them be able to enjoy their golden years in comfort and not in a state of constant fear of being taken advantage of!

 

If you’re eligible for an early-retirement package from your employer, determine whether post-retirement medical coverage is included.These packages sometimes provide medical coverage until you reach age 65 and become eligible for Medicare. Given the high cost of medical care, you might find it hard to turn down an early-retirement package that includes such coverage.

If your package doesn’t include post-retirement medical coverage, or you’re not eligible for an early-retirement package at all, you’ll need to look into alternative sources of health insurance, such as COBRA continuation coverage or an individual health insurance policy, to carry you through to Medicare eligibility.

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), most employer-provided health plans (typically employers with 20 or more employees) must offer temporary continuation coverage for employees (and their dependents) upon termination of employment. Coverage can last for up to 18 months, or 36 months in some cases. You’ll generally have to pay the full cost of coverage–employers aren’t required to continue their contribution toward coverage,and most do not. Employers can also charge an additional 2% administrative fee.

Individual health insurance is available directly from various insurance carriers or, as a result of the Affordable Care Act, through state-based or federal health insurance marketplaces. One advantage of purchasing coverage through a marketplace plan is that you may be entitled to a premium tax credit if your post-retirement income falls between 100% and 400% of the federal poverty level (additional income-based subsidies may also be available).

Some factors to consider when comparing various health options are (1) the total cost of coverage, taking into account premiums,deductibles, co payments, out-of-pocket maximums, and (for marketplace plans) tax credits and subsidies; (2) the ability to continue using your existing health-care providers (and whether those providers will be in-network or out-of-network); and (3) the benefits provided under each option and whether you’re likely to need and use those benefits.

The right answer for you will depend on your situation. First of all, don’t underestimate the psychological impact of early retirement. The adjustment from full-time work to a more leisurely pace may be difficult. So consider whether you’re ready to retire yet. Next, look at what you’re being offered. Most early-retirement offers share certain basic features that need to be evaluated. To determine whether your employer’s offer is worth taking, you’ll want to break it down.

 

Does the offer include a severance package? If so, how does the package compare with your projected job earnings (including future salary increases and bonuses) if you remain employed? Can you live on that amount (and for how long) without tapping into your retirement savings? If not, is your retirement fund large enough that you can start drawing it down early? Will you be penalized for withdrawing from your retirement savings?

 

Does the offer include post-retirement medical insurance? If so, make sure it’s affordable and provides adequate coverage. Also, since Medicare doesn’t start until you’re 65, make sure your employer’s coverage lasts until you
reach that age. If your employer’s offer doesn’t include medical insurance , you may have to look into COBRA or a private individual policy.

 

How will accepting the offer affect your retirement plan benefits? If your employer has a traditional pension plan, leaving the company before normal retirement age (usually 65) may greatly reduce the final payout you receive from
the plan. If you participate in a 401(k) plan, what price will you pay for retiring early? You could end up forfeiting employer contributions if you’re not fully vested. You’ll also be missing out on the opportunity to make additional
contributions to the plan.

 

Finally, will you need to start Social Security benefits early if you accept the offer? For example, at age 62 each monthly benefit check will be 25% to 30% less than it would be at full retirement age (66 to 67 , depending on your
year of birth). Conversely, you receive a higher payout by delaying the start of benefits past your full retirement age–your benefit would increase by about 8% for each year you delay benefits, up to age 70.

Life insurance can serve many valuable purposes during your life. However, once you’ve retired, you may no longer feel the need to keep your life insurance, or the cost of maintaining the policy may have become too expensive. In these cases, you might be tempted to abandon the policy or surrender your life insurance coverage. But there are other alternatives to consider as well.

 

Lapse or surrender

 

If you have term life insurance, you generally will receive nothing in return if you surrender the policy or let it lapse by not paying premiums. On the other hand, if you own permanent life insurance, the policy may have a cash surrender value (CSV), which you can receive upon surrendering the insurance. If you surrender your cash value life insurance policy, any gain (generally, the excess of your CSV over the cumulative amount of premium paid) resulting from the surrender will be subject to federal (and possibly state) income tax. Also, surrendering your policy prematurely may result in surrender charges, which can reduce your CSV.

 

Exchange the old policy

 

Another option is to exchange your existing life insurance policy for either a new life insurance policy or another type of insurance product. The federal tax code allows you to exchange one life insurance policy for another life insurance policy, an endowment policy, an annuity, or a qualified long-term care policy without triggering current tax liability. This is known as an IRC Section 1035 exchange. You must follow IRS rules when making the exchange, particularly the requirement that the exchange must be made directly between the insurance company that issued the old policy and the company issuing the new policy or contract. Also, the rules governing 1035 exchanges are complex, and you may incur surrender charges from your current life insurance policy. In addition, you may be subject to new sales, mortality, expense, and surrender charges for the new policy, which can be very substantial and may last for many years afterward.

 

Lower the premium

 

If the premium cost of your current life insurance policy is an issue, you may be able to reduce the death benefit, lowering the premium cost in the process. Or you can try to exchange your current policy for a policy with a lower premium cost. But you may not qualify for a new policy because of your age, health problems, or other reasons.

 

Stream of income

 

You may be able to exchange the CSV of a permanent life insurance policy for an immediate annuity, which can provide a stream of income for a predetermined period of time or for the rest of your life. Each annuity payment will be apportioned between taxable gain and nontaxable return of capital. You should be aware that by exchanging the CSV for an annuity, you will be giving up the death benefit, and annuity contracts generally have fees and expenses, limitations, exclusions, and termination provisions. Also, any annuity guarantees are contingent on the claims-paying ability and financial strength of the issuing insurance company.

 

Long-term care

 

Another potential option is to exchange your life insurance policy for a tax-qualified long-term care insurance (LTCI) policy, provided that the exchange meets IRC Section 1035 requirements. Any taxable gain in the CSV is deferred in the long-term care policy, and benefits paid from the tax-qualified LTCI policy are received tax free. But you may not be able to find a LTCI policy that accepts lump-sum premium payments, in which case you’d have to make several partial exchanges from the CSV of your existing life insurance policy to the long-term care policy provider to cover the annual premium cost.

 

A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.

A 2015 study found that 41% of households headed by someone aged 55 to 64 had no retirement savings, and only about a third of them had a traditional pension. Among households in this age group with savings, the median amount was just $104,000.1

 

Your own savings may be more substantial, but in general Americans struggle to meet their savings goals. Even a healthy savings account may not provide as much income as you would like over a long retirement.

 

Despite the challenges, about 56% of current retirees say they are very satisfied with retirement, and 34% say they are moderately satisfied. Only 9% are dissatisfied.2

 

Develop a realistic picture

 

How can you transition into a happy retirement even if your savings fall short of your goals? The answer may lie in developing a realistic picture of what your retirement will look like, based on your expected resources and expenses. As a starting point, create a simple retirement planning worksheet. You might add details once you get the basics down on paper.

 

Estimate income and expenses

 

You can estimate your monthly Social Security benefit at ssa.gov. The longer you wait to claim your benefits, from age 62 up to age 70, the higher your monthly benefit will be. If you expect a pension, estimate that monthly amount as well. Add other sources of income, such as a part-time job, if that is in your plans. Be realistic. Part-time work often pays low wages.

 

It’s more difficult to estimate the amount of income you can expect from your savings; this may depend on unpredictable market returns and the length of time you need your savings to last. One simple rule of thumb is to withdraw 4% of your savings each year. At that rate, the $104,000 median savings described earlier would generate $4,160 per year or $347 per month (assuming no market gains or losses). Keep in mind that some experts believe a 4% withdrawal rate may be too high to maintain funds over a long retirement. You might use 3% or 3.5% in your calculations.

 

Now estimate your monthly expenses. If you’ve paid off your mortgage and other debt, you may be in a stronger position. Don’t forget to factor in a reserve for medical expenses. One study suggests that a 65-year-old couple who retired in 2015 would need $259,000 over their lifetimes to cover Medicare premiums and out-of-pocket health-care expenses, assuming they had only median drug expenses.3

 

Take strategic steps

 

Your projected income and expenses should provide a rough picture of your financial situation in retirement. If retirement is approaching soon, try living for six months or more on your anticipated income to determine whether it is realistic. If it’s not, or your anticipated expenses exceed your income even without a trial run, you may have to reduce expenses or work longer, or both.

 

Even if the numbers look good, it would be wise to keep building your savings. You might take advantage of catch-up contributions to IRAs and 401(k) plans, which are available to those who reach age 50 or older by the end of the calendar year. In 2016, the IRA catch-up amount is $1,000, for a total contribution limit of $6,500. The 401(k) catch-up amount is $6,000, for a total employee contribution limit of $24,000.

 

Preparing for retirement is not easy, but if you enter your new life phase with eyes wide open, you’re more likely to enjoy a long and happy retirement.

 

  1.  U.S. Government Accountability Office, “Retirement Security,” May 2015
  2.  The Wall Street Journal, “Why Retirees Are Happier Than You May Think,” December 1, 2015
  3.  Employee Benefit Research Institute, Notes, October 2015

If you’re within 10 years of retirement, you’ve probably spent some time thinking about this major life change. The transition to retirement can seem a bit daunting, even overwhelming. If you find yourself wondering where to begin, the following points may help you focus.

 

Reassess your living expenses

 

A step you will probably take several times between now and retirement–and maybe several more times thereafter–is thinking about how your living expenses could or should change. For example, while commuting and dry cleaning costs may decrease, other budget items such as travel and health care may rise. Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes reality.

 

Consider all your income sources

 

Next, review all your possible sources of income. Chances are you have an employer-sponsored retirement plan and maybe an IRA or two. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of your monthly benefit amount.

 

Do you have rental income? Be sure to include that in your calculations. Is there a chance you may continue working in some capacity? Often retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts, giving them more time to potentially grow.

 

Finally, don’t forget Social Security. You can get an estimate of your retirement benefit at the Social Security Administration’s website, ssa.gov. You can also sign up for a my Social Security account to view your online Social Security Statement, which contains a detailed record of your earnings and estimates of retirement, survivor, and disability benefits.

 

Manage taxes

 

As you think about your income strategy, also consider ways to help minimize taxes in retirement. Would it be better to tap taxable or tax-deferred accounts first? Would part-time work result in taxable Social Security benefits? What about state and local taxes? A qualified tax professional can help you develop an appropriate strategy.

 

Pay off debt, power up your savings

 

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

 

  • Why pay off debt? Entering retirement debt-free–including paying off your mortgage–will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with mortgage, loan, and credit card balances will put you at the mercy of those monthly payments. You’ll have less of an opportunity to scale back your spending if necessary.
  • Why power up your savings? In these final few years before retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or your IRAs? Aim for the maximum allowable contributions. And remember, if you’re 50 or older, you can take advantage of catch-up contributions, which allow you to contribute an additional $6,000 to your employer-sponsored plan and an extra $1,000 to your IRA in 2016.

 

Account for health care

 

Finally, health care should get special attention as you plan the transition to retirement. As you age, the portion of your budget consumed by health-related costs will likely increase. Although Medicare will cover a portion of your medical costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental insurance policy.

 

In 2015, the Employee Benefit Research Institute reported that the average 65-year-old married couple would need $213,000 in savings to have at least a 75% chance of meeting their insurance premiums and out-of-pocket health care costs in retirement. And that doesn’t include the cost of long-term care, which Medicare does not cover and can vary substantially depending on where you live. For this reason, you might consider a long-term care insurance policy.

 

These are just some of the factors to consider as your prepare to transition into retirement. Breaking the bigger picture into smaller categories may help the process seem a little less daunting.

 

A financial professional can help you estimate how much your retirement accounts may provide on a monthly basis. Your employer may also offer tools to help. Keep in mind, however, that neither working with a financial professional nor using employer-sponsored tools can guarantee financial success.