The current population of the United States of America is 326,902,720 as of September 2017, based on the latest United Nations estimates. Of that population, 39% are ages 35 to 64. Those ages 65+ total 15%. This means there are many people that should be planning for retirement.
Nationwide, the average American under age 65 is earning $46,409 per year, according to the Census Bureau's Current Population Survey. Income can vary significantly by age.
Experts remind us that averages can be deceiving. They suggest considering average (mean) income and median income. As a quick refresher, the median is the exact midpoint of a range of data, so there's an equal likelihood of falling above it or below it.
As the following chart illustrates, our mean and median incomes start off low, build steadily into our 40s, and then begin declining up to and throughout our retirement:
IMAGE SOURCE: CENSUS BUREAU, CURRENT POPULATION SURVEY 2016.
According to Todd Campbell writing in the Motley Fool https://www.fool.com/retirement/2017/01/02/americans-average-income-by-age-how-do-you-compare.aspx income levels change significantly over a career, but income isn't the only path to financial security in retirement.
As you can imagine, most people’s income will drop when they retire. Saving for your future retirement is something you should be doing sooner than later. America ranks well when compared to other countries when it comes to how we are preparing for a time we won’t be working OR earning an income.
An article written by Richard Eisenberg in Next Avenue http://www.nextavenue.org/ready-u-s-retirement-aging/?utm_sq=fh2qo5oosv shows how Americans compare to others throughout the world.
What many people forget about is health expenses. On top of medical expenses is the cost and burdens of long-term care. A great retirement plan can be devastated by the cost of long-term care services either at home or in facilities. Many people think it won’t ever happen to them. However, the facts and common sense suggest otherwise.
Some experts call this the cost of longevity. The older we live the more money we need. At the same time, the longer we live the more likely you will require help with activities of daily living (things like eating, dressing, bathing, etc.) or we will need to be supervised due to memory issues like Alzheimer’s Disease.
According to the American Association for Long-Term Care Insurance, a national consumer advocacy and education group, Alzheimer's disease or other dementias was the leading cause for a nursing home stay. Over half (50.4 percent) of residents had that diagnosis. Depression and diabetes were two other leading diagnoses. However, most long-term care is not delivered in a nursing home as people receive care either at home, adult daycare or assisted living facilities.
This cost will have a huge impact on your savings (401(k) IRA 403(b) and other assets. Many people, because of no advance planning, will have their daughters or daughters-in-law provide care. This adds a tremendous burden on these family members and their families according to the AARP.
This is why many planners suggest long-term care insurance. These affordable plans (if you purchase before you retire) will provide tax-free benefits for care in the setting you and your family will desire.
Most states also offer federal/state partnership policies. These partnership certified plans provide consumers with additional “dollar-for-dollar asset protection” or what is referred to as “asset disregard”. This means that the exact amount of your resources (assets) equal to the dollar amount of long-term care insurance benefits paid to you or on your behalf under the policy may be disregarded for purposes of determining eligibility for long-term care Medicaid benefits. It also protects your estate from any subsequent recovery by the State for receipt of Medicaid-paid services.
Here is a checklist to consider prior to retirement (if you are already retired it may not be too late to complete some of these suggestions):
- Contribute to your employer’s 401(k) or 403(b) plan. Paying yourself first is key to successful retirement planning. If your employer provides a match try to maximize your contribution.
- Roll-Over old 401(k) accounts into an IRA you control. Some people just leave the money in their old accounts in their previous employer’s plan. You can complete a tax-free roll-over and control that money in your own account.
- Purchase Long-Term Care Insurance to safeguard your future retirement savings. They are very affordable when purchased young when you are in better health. Premiums are based on your application AGE and HEALTH and are intended to remain level. The LTC policy will protect your assets from the financial costs and burdens of aging.
- Remember: It's never too late! Sure, you should start young but if you didn’t, start now.
- Get out or reduce debt. Pay off high-interest rate credit cards. Take advantage of low-interest rates and refinance your mortgage.
- Create an investment plan. Have a plan and execute the plan. Make this a priority. If you need help seek expert advice.
- Figure what your retirement expenses will be. Include vacations, healthcare, and living expenses. Will you move? If you do move, where to? What are the tax implications of a move? It is best to think about this before it happens!
- What will you do in retirement? Yes, this is something to think about before you retire. Do you have hobbies? Will you travel? Recreational activities? Most experts suggest a successful retirement is one where you will be active and having fun. Volunteer with a charity, start a small business, be involved in your church, activity is good for your mind and body.
Planning ahead is good and is always better than crisis management. America might be ready but the most important question is: Are you ready?
About the Author
An LTC News author focusing on long-term care and aging.
Contributor since August 21st, 2017