Guide to Start Planning for Healthcare in Retirement

Plan for the worst and hope for the best. That’s what a friend of mine used to tell me she always did. That’s how she ran her life. I’m a planner – I plan just about everything. But I do not plan for the worst and I always hope for the best. However, when it comes to feeling good about what our future holds as far as health care and retirement looks like, this would be a time to plan for the worst and hope for the best.

Health care is and will continue to be one of the biggest expenses in retirement. Yet many people nearing retirement don’t understand the risks these costs pose to their financial plan – and aren’t preparing for them. According to the 4th Annual Nationwide Retirement Institute survey, America’s workers are “terrified” of health care costs in retirement, but few are doing anything about their concerns.

Here’s just a few statistics and things to ponder:

Remember when everyone used to work at the same… department store, firm or manufacturing company for 35+ years. Back then, you were promised a pension and allowed to also keep your health care plan after leaving their employ – even for the whole family! Back in 1997, this was true for 1 of 4 in and in 2011 this number was down to 10% employer coverage.

Today, 26% of the American people don’t know what the annual health care costs in retirement will cost after stepping away from employment. The blazing question is: Did you or are you budgeting enough for this healthcare expense?

If you haven’t yet thought about it, and in order to plan for this, you’ll need to know what portion of your income or savings you’ll need for Medigap or medicare supplement premiums, Medicare Part B Premiums, Medicare Part D Premiums (Rx) and Out-of-Pocket Drug expenses.

Just released is the new Part B Deductible that all Medicare participants have to come out-of-pocket with. It went from $166 to $183.

To help you plan:

  • Have a very good idea of what income you’ll have in the 65+ years of your life. Typically, that would be pensions, IRA’s or other retirement accounts and Social Security.
  • Write out a budget. Know what your set-in-stone living expenses will be. Will you have an auto or home payment? What will groceries cost, special events/occasions such as birthdays, utilities. Be ver conservative here and allow for inflation.
  • Get a very good picture of what your out-of-pocket healthcare expenses look like. This should start with a conversation with your financial advisor.

Why People Spend Consistently More Than They Earn

Why do so many people spend consistently more than they earn? They fall deep in debt, their quality of life plummets, they retain their cherished buys, but do not enjoy them fully. Sadly, they believe seductive lies merchants put forth while peddling goods.

For over twenty years, I have been working with mainly churched individuals, couples, and families on personal financial matters. Many were in deep debt, concomitant stress, and joyless for long periods. Some emerged debt free in different time periods, while others stayed trapped in the debt cycle. During this time, I noted specific attitudes and behaviours that led some people out of debt, and attributes that appear to keep some folks trapped.

Ten Reasons people spend consistently more than they earn

Particularly, I noted ten reasons many folks seem to spend consistently more than they earned, and so, they remained stuck in a debt cycle. However, one significant observation surprised me. Folks who chose to stick to only some of the items on the list, never had sustained success as others who followed all of them. So, it was not good enough to set a goal, do a budget, and plan for emergencies alone. Instead, folks needed to be alert to all items to crawl out of debt and stay out.

  1. Ignore consequences of decisions
  2. No process to decide to spend
  3. No budget
  4. Easy credit
  5. Herd mentality
  6. No accountability
  7. Anticipate funds
  8. Emotional satisfaction
  9. Instant gratification
  10. Ignorance

1. Ignore consequences of decisions

Folks spent, PERIOD! They were not concerned with the effects of spending. Indeed, they didn’t think about how this spending might reduce their ability to do something else later. They considered nothing but spending to get the current item. But when they realized how much debt they incurred, they started the blame and victim games. Folks, let’s never forget this Benjamin Franklin quote: “He that is good for making excuses is seldom good for anything else.”

2. No process to decide spend

People who remained in debt did not think it was necessary to follow a spending decision procedure before spending. They saw this as time consuming and unnecessary. Still, without a process to help you look at alternatives, including the alternative of not spending, you will let situations lead you. And you will end up with debt for a long time–a debt sentence.

3. No budget

Most folks I see do not want to budget. Moreover, they do not want to learn about a budget because they believe it is a strait jacket. But a budget is nothing more than a guide to help you get to your goals in a stress free manner. We don’t know the future so it will likely be wrong. But we need to go through the process. The late Dwight D. Eisenhower puts it this way: In preparing for battle I have always found that plans are useless, but planning is indispensable.

To be sure, the budget is not a constraint. You prepare it. You implement it. The budget helps you consider opportunities and challenges in a future period so you might prepare to deal with them now. Often folks tell people to budget and all will be well. However, that’s just part of the journey. We need to review and update budgets and plans regularly as events change. And they do change.

In the budget, we can plan and save for emergencies that will arise. We don’t know when, but we know they will arise, so we should plan for them. According to Warren Buffet, “Do not save what is left after spending. Spend what is left after saving.” A budget is the best tool to help you do this.

4. Easy credit

It’s easy to get credit. And it can be cheap. Besides, it’s invisible money, so people spend confident they can make a small minimum payment for years. Indeed, I have seen folks with over seven credit cards, juggling monthly payments over long periods. I am not against having one credit card provided we convert it to a check. Sadly, many people focus on fixing credit scores and not fixing their attitudes and behaviour. These folks spend consistently on credit and end up with invisible electronic ankle bracelets reflected by intense emotional stress.

5. Herd mentality

Keeping up with the Joneses’ has never been easier. People follow their friends, family, neighbours. However, they forget two critical matters. First, their neighbours et al, might be deep in debt with no outward sign. Second, the neighbour might be at a different life stage where she can afford to buy that new car for cash.

Here is my paraphrase of a relevant quote from the late Adrian Rogers: Just as you upgrade to catch up with your neighbour, he upgrades again.

6. No accountability

Folks spend and spend and spend and do not account to anyone. In families this can be a huge issue. Husband or wife spends while the other is distracted, then voilà!, reality hits and the other party realizes the couple is broke and doomed for a long debt sentence. We should always remember we are spending God’s money and we will have to account for our stewardship. Romans 14:12 (ESV) reminds us, “So then each of us will give an account of himself to God.” We need an accountability partner to help us stay on course to do His will.

7. Anticipated funds

Your boss promises you a raise and a bonus. Immediately you leave her office you spend it on goods you yearned for. Before the raise and bonus materializes, the company is in trouble and you are laid off. Ouch! You can’t return the items; now, they are yours. That’s why it’s crucial you never spend funds before you get them. Apostle James reminds us that God alone knows the future in James 4:13-15 (ESV):

Come now, you who say, “Today or tomorrow we will go into such and such a town and spend a year there and trade and make a profit”- 14 yet you do not know what tomorrow will bring. What is your life? For you are a mist that appears for a little time and then vanishes. 15 Instead you ought to say, “If the Lord wills, we will live and do this or that.

8. Emotional satisfaction

Some folks spend to boost their image. They feel good after buying that new dress or new car (yes, a car, I have seen that a few times). They had a rough morning, or tough week and go strolling in the mall, and without thinking, they buy stuff on credit. Reality hits much later.

9. Instant gratification

We want that item now. Not tomorrow, not next week, now! That’s the society we live in. We hear it always. Why wait? The merchant says if you wait the price will go up. To be sure, there is always a sale, so you shouldn’t react to that hook. Often, waiting means you get something better and more effective for your purposes. Mull over Walter Mischel et al’s marshmallow experiment in the 1960s and 1970s. It showed that delayed gratification pays significant life benefits.

10. Ignorance

Ignorance comes in many forms, but the main area I see is people spending to save. So many folks believe they are great handling money because they get many deals. They are proud to tell you how they saved 50%, 70% on major buys. Sadly, they don’t realize that buying in these sales mean they spent; they saved nothing. Another area I see is people not reading the fine print. These folks get trapped with cell phone contracts, TV arrangements, and other contracts where understanding aspects of the fine print is crucial. The third ignorance area is people buying extended warranties whenever it’s offered. Research shows consistently that for most items, buying an extended warranty is wasteful.

Summary

I believe sincerely, if folks reflected on these ten items, and examined their situations, they might not spend consistently more than they earn. Indeed, they might decide that minor attitude adjustments will help them spend consistently less than today. And they might be able to get off the debt cycle, sooner rather than later. Let’s meditate on this profound Elise Boulding’s quote:

Frugality is one of the most beautiful and joyful words in the English language, and yet one that we are culturally cut off from understanding and enjoying. The consumption society has made us feel that happiness lies in having things, and has failed to teach us the happiness of not having things.

Ways to Create a Budget for Your Household

Stability in employment, maintaining good credit, and following a household budget is the key to creating long-term financial security. Good credit scores and wise spending habits will help you save more of your money through lower interest rates and less debt. The following steps will help you maximize your credit scores and create a household budget that will eliminate waste and create savings.

• Step One – Request a free copy of your credit report from annualcreditreport.com. This report includes information from the 3 main credit reporting agencies (TransUnion, Equifax, and Experian). You are legally entitled to one free credit report annually.

• Step Two – After you receive your free credit report, thoroughly review the entire credit report for any errors or discrepancies. If you find any errors, such as: late payments, collections, inaccurate balances, or any other inaccuracy you can dispute the errors with the credit bureaus. Typically, the credit agencies reporting the disputed information will investigate the account in question and require the creditor that reported the information to provide proof of the account in question. If the creditor cannot provide evidence that you owe the debt, it would be corrected on your report.

• Step Three – Before you create your budget, you should collect your bank statements, credit card statements, receipts, and any other documentation that shows your expenses.

• Step Four – To determine your monthly income, you should collect your most recent pay stub. For budget purposes use your income that you take home on your pay stub (after taxes). If you are an hourly employee and work full-time or if you are a salaried employee calculating your income will be simple. For individuals that are self-employed or receive tip, bonus, or commissioned income you will need to average your income over the last 12 or 24 months to create your budget.

• Step Five – Always put your budget in written or printed form. You can use a software program to create a spreadsheet or write out your budget on paper. First write down your monthly income and then break down your current expenses. This will allow you to see where you spend your money and how you may be able to cut expenses and save. Further break down your expenses under fixed and discretionary. Fixed expenses are permanent, whereas discretionary expenses would include: entertainment, groceries, clothing, vacation savings, etc.

• Step Six – Review your budget and look for ways to cut your spending. Hopefully, you find areas to save money each month by eliminating unnecessary spending. Try and pay off any credit cards that you carry balances on, before putting any money into your savings.

After you have reviewed your credit report and created a budget, it is a good idea to review your budget each month and make any changes. Also, if your income or bills change, make sure you adjust your budget accordingly and always consider saving before adding new debts. Remember you are entitled to one free credit report annually, so be sure to review your credit annually to check for any inaccuracy or for possible identity theft.

How To Plan Financial Steps When You are Still Young and Single

My parents taught me to earn and save money from an early age. I had a checkbook before I was 10, I was in stock market club in 5th grade and had a job as soon as was legally possible. I always balanced my checkbook, had a credit card before 18, paid it off monthly and even learned to file my own taxes. You could say I was quite financially responsible for any age. I took a risk moving across the country when I was 22 and lost my savings trying to “make it”. So when I became pregnant, I was practically starting completely over. Thankfully I already had the skills and resourcefulness to make it work. Now, with my little 3 person family, I am taking seriously all the things I could have done earlier to ensure our financial stability. Benefit from my mistake, and see if you can implement any of these now before you wish you had.

Budget Your Money

To budget your money, you first have to know what you are currently making and spending your money on. First include your bills, most important first, all the way down to expenses that vary month to month like utilities, gas, food, etc and finally fill in a month’s worth of categories such as gifts, donations, dining/entertainment, and personal care to learn what you are spending in these unrecorded categories. After you’ve made a budget of one month’s expenses, you can evaluate where you are spending unnecessarily. Perhaps there was a category out of control prior to this experiment, or your car insurance, cell phone or cable bill can be negotiated. Now you know what you need to make per month to live and where you’d like to cut your spending.

Satisfy Your Need To Succeed or Spend

Everyone should have an experience they made a financial goal and smashed it. I think it’s pertinent to future financial success. It sucks if you have children before you’re able to make and meet a goal and are now living paycheck to paycheck or have little room in your budget to save or invest. Consider making a goal before you have children so you can benefit from the experience of seeing your vision through. This can also be fun for someone who has cut a lot of the budget fat and left little room for shopping, something they may have really loved before. You can start by having a goal of a 500.00-1,000.00 emergency fund (adjust as necessary) and then saving for something you really want, a trip to visit your aunt in California, a 52-inch flat screen.

Plan Your Meals

The third highest expense in most family’s budgets are groceries, so I’m meal planning a lot now. Learning to cook and eat healthy is an important part of a single person or family’s life, saving money on that food is dire to a family’s monthly budget. You can electronically view the grocery’s stores ads online or like ours, in their app. I begin making my grocery list based on what’s on sale. If coupons are available to you, I include those in my list and try to make meals of what’s already on sale. It takes time to nail down the rhythm, but my family has shaved off at least 200.00/month doing only these things.

Make A Pantry

I would never have considered doing this as a single person, but it’s brilliant. The space you dedicate as the pantry does not have to be very large. This is where you will put canned/boxed foods and personal care items that you find greatly discounted or just to have extra on hand. Good food items to keep there are boxes of cereal, Jell-O and pudding, cake/muffin mix, Jiffy cornbread mix, peanut butter, beans and tomatoes for chili and tomato soup. I also like to keep things like extra deodorant, shaving cream, shampoo, conditioner, toothbrush, and toothpaste.

Switch To The Dollar Store

Not everything should be purchased at the dollar store, but many items can without you batting an eye about its quality. Getting used to shopping at the dollar store as regularly as the grocery store will keep you in enough of a frugal mindset to keep your financial goals at the center of your spending. There are so many items that can be bought there alternatively that I will save my favorites for another article. Just find the dollar store nearest your house and roam the aisles, noting things you’d consider purchasing instead of where you currently are for much higher cost.

Save or Invest

I owned my own business from age 22 to 24 and I didn’t want to miss out on the benefits of 401Ks being offered to employees of companies, so I went to my credit union to learn about IRAs, a retirement account for people who work for themselves. There my adviser congratulated me for seeing him so young because I “only have time on my side!”. He was exactly right. With any investment, it’s best to have the most time on your side. 401Ks are only offered to employees, so that was not an option for me. My IRA did not make any money in the 4 years I kept it, but things could change. It was still as if I had saved it! If you have the option to start a 401K with your employer, do it! Your employer often matches your contributions, which you would not be able to take advantage of working for yourself. If neither of these options are available to you, due to your employment position or lack of funds, just begin a savings account, be realistic about what you can contribute monthly and commit to it.

In one year I turned my financial situation around with my resourcefulness and inability to give up with a child on the way. When I got pregnant I was 3,000 in credit card debt and had no money. By his birth, I had prepared for him completely, paid off the credit card debt, saved for 2 months maternity leave and had a couple thousand dollars cushion in my bank account. 10 months later I’m a stay at home mom with an at home business and I’m contributing to our savings regularly, including my son’s separate account. I don’t think we’ll ever fall on hard times like that again, but in case we do, I’ll have all systems in place!