You need retirement savings of...whatever you're going to need in the future. And I honestly do not mean to be elliptical, sarcastic, or Zen.
The two biggest issues for current retirees are: 1) healthcare costs and 2) inflation. Whatever Washington finally does to 'fix' SocSec and Medicare will almost certainly be a combination of lower payout from the government and higher costs to users. The CPI understates inflation for those who are on fixed incomes, a fact long established. 3%/yrly inflation cuts your buying power by 50% in about two decades.
Consider my MIL, now 85. She has a small pension, a modest SocSec, and a portfolio of over half a million $$, from which she takes a 2.8% distribution. Her RMD amount is calculated as part of this, so it's actually a little less, more like 2.5% distribution. Unlike most people, she has retiree health benefits ($200/mo premium), so a broken elbow and an eye operation have cost her very little money, less than $500.
But she also has dementia. It has gotten noticeably worse in the last six months. She has been living with us since 2006, but it is rapidly getting to the point where DH and I can see that she will be happier and better cared for in a good memory care facility. Our lifestyle is not social enough to give her sufficient stimulation. Fortunately there are several nearby us; we want her to be close.
This is an urban, high cost labor area. Base price for a tiny studio in Assisted Living averages $4,675/month plus extra fees for special services (assistance dressing or bathing, for example). This will require a larger drawdown of her funds. When she goes into Memory Care – nobody ever recovers from dementia, they only get worse – the current cost is $6,000/month inclusive.
These are today's prices (literally; we've just spent the past month visiting five facilities). Costs go up 3-5% annually for AL/full nursing facilities; they have never gone down.
None of the well-rated, nicely maintained, good care facilities will accept Medicaid-only patients. Not a single one! I have been to facilities that take Medicaid-only patients and they are some of the most depressing places imaginable.
So even if you have good health now, modest overhead and expectations, that doesn't mean you are "home free." The fastest growing segment of the GLOBAL population is the group age 80+. Every industrialized nation, national healthcare or not; Europe, North America, or Asia, is worried about how to pay for increasing eldercare costs.
Money can't solve everything. What it can do is to give you options others who are less fortunate, don't have access to. We know we are far luckier than most. A lot of Boomers our age are terrified of old age infirmity because they realize they haven't planned for it financially.
How long do you plan to live? Even with lows in interest rates, maybe an annuity might be worth exploring. Life annuity if you are single and joint/ survivor annuity if you are married.
You and spouse will have a guaranteed income that you can not outlive.
At least look at the option. If you have health issues, get 5 or 10 years but life with 5 or 10 guaranteed for spouse.
Don't do 100% annuity but at least look.
I think we are comparing long term care with a guaranteed annuity.
Long term care usually requires evidence of insurability and a straight annuity doesn't. LTC is cheaper the younger it is purchasedand may have some tax benefits, too.
A fixed annuity is different and health is not a factor if the annuity is for a period of years.
I am retired but you probably need to hire a fee only planner. The main thing is caution. There are no "do overs."
I guess it depends on your lifestyle and a myriad of variables.
At age 94, a friend had to replace engine in an eight-year-old car and put a new roof on her house. At 94, do you buy 20, 25, or 30 year shingles? Do you buy a new car or fix the old one.
This was a real set if decisions she had to do at 94. She had bypass surgery a few years earlier and was not sure she even wanted to do that. She did. She died at 96. I think she repaired her car and bought cheaper shingles.
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