Can Your 401(k) Survive Inflation and Future Long-Term Health Care?
It is hard to avoid noticing inflation. Energy costs are skyrocketing, and we see that at the gas pumps. Not only to you notice the record-high cost of gasoline when you go to fill up but in prices of almost everything.
According to Gas Buddy, the national average for a gallon of gas has been increasing since May 2020. Inflation in all sectors of the economy and market fluctuations have added a large amount of uncertainty when it comes to the economy. Most people's retirement accounts have also taken a hit, making many people wonder if they have enough money to retire in the decades ahead.
Inflation hit 8.6% in the May 2022 report - a 40-year high for inflation. You have to go back to December 1981 to see inflation this bad. Not only is the cost of living increasing, but with market uncertainty, people see the value of their investments drop.
Have You Changed Your Retirement Planning?
Experts say a growing number of people are scared to place money in investment accounts despite being long-term investments. Some people need the cash they had set aside for retirement, and others want to avoid the stock market.
However, while the current state of the economy has more people concerned, they have 'stayed the course' so far. Fidelity Investments, one of the country's leading providers of workplace benefits, says account values have dropped, but savings rates continue to increase.
Fidelity's first quarter 2022 analysis of savings behaviors and account balances for more than 35 million IRA, 401(k), and 403(b) retirement accounts shows that the 401(k) savings rate has reached record levels; however, account values have dropped due to stock market's performance.
Avoid Making Knee-Jerk Reactions
Kevin Barry, president of Workplace Investing at Fidelity Investments, says that during periods of economic uncertainty, it's important for people to stay focused on their long-term savings goals and not make knee-jerk reactions to short-term market events.
While the market's performance does impact account balances in the near term, consistent contributions and having an appropriate asset allocation are just as important for a successful long-term retirement savings strategy. Encouragingly, Fidelity's analysis found that the majority of retirement savers continued to demonstrate positive savings behavior, which will help keep them on track to reach their goals.
Kevin Barry
Most experts would agree that Americans should save more. The Fidelity report shows the average IRA has a value of $127,100 at the end of the first quarter of 2022. The average 401(k) had a value of $121,700, and the average 403(b) had a value of $107,600.
How Much Should You Save?
Ideally, if you earn $50,000 a year, you should have $300,000 in savings by age 50. If you make $75,000 a year, you should have $450,000 in savings by 50. By age 50, Fidelity suggests having at least six times your salary in savings to retire comfortably at age 67. By age 55, it recommends having seven times your salary.
Not only do most people not save enough, fewer considerable the rising costs of health care, including skyrocketing long-term health care expenses.
Fidelity says that a 65-year-old couple retiring in 2022 will spend an average of $315,000 in health care and medical expenses. The 2022 estimate for single retirees is $150,000 for men and $165,000 for women. The estimate does not include other health-related costs, such as over-the-counter medications, dental services, or long-term health care.
Most people will have Medicare and a supplement that should address much of their future medical expenses, but dental costs and long-term health care are not covered by traditional health insurance, including Medicare and supplements. Medicaid will cover long-term care services only if you have little or no income and assets.
Long-Term Care Costs on the Rise
Inflation is also impacting the costs of long-term health care services, but costs have already been rising sharply due to increasing demand for care and higher labor costs.
The LTC NEWS Cost of Care Calculator shows the national average cost of in-home care (based on a 44-hour week) in 2042 will run almost $8,000 a month. The expected base cost in an assisted living facility will be over $7,100 a month. Nursing homes cost more but are the least used type of care; they should run almost $15,100 a year in 2042.
The cost of care where you live could be more. For example, in Naperville, Illinois, the average cost of in-home care (based on a 44-hour week) in 2042 will run almost $8,900 a month. The expected base cost in an assisted living facility will be over $10,100 a month. Nursing home costs in Naperville, Illinois, in 2042 should cost about $16,700 annually.
The LTC NEWS Cost of Care Calculator shows the current and future cost of care services where you live - click here and find your location.
Take Proactive Action
There are steps you can take to ensure a prosperous future retirement. Be sure to continue to fund your 401(k), IRA, or 403(b) accounts. If your employer is matching, then maximize what you contribute. Don't worry about the markets unless you are over 55 since dollar-cost averaging will address market fluctuations.
If you don't have retirement savings, then you better start now. You are neither too young to create an account nor too late if you have not done so by now.
If you have a Health Savings Account, consider contributing the maximum you can. If you're 55 or older, you can contribute an additional $1,000 per year to your HSA as a catch-up contribution. The catch-up contribution is in addition to the annual maximum contribution.
Be sure to stay on a budget and watch expenses as the cost of everything is going up quickly.
LTC Insurance Can Be the Solution
Consider adding a Long-Term Care Insurance policy to your retirement planning. If you live in one of the states considering taxing people who do not own an LTC Insurance policy, you might want to act on this quickly no matter your age; otherwise, most people get coverage in their 50s.
One thing to remember is that long-term health care can dramatically affect your cash flow. The bills keep coming in, and your needs slowly progress over time. However, long-term care is more than just about finances. Sure, money is important, and you want to maintain your lifestyle and legacy. Long-term care is a family issue, not just about money. The consequences on your family can be life changing.
Your adult children often become default caregivers in the absence of any planning. Family caregivers must attempt to balance their jobs, families, and lives with the role of being a caregiver. Not only is this a physically demanding job, but it is also very hard emotionally. Long-Term Care Insurance gives the family the time to be family instead of a caregiver.
Long-Term Care Insurance provides benefits that pay for the type of care you want and deserve. You can stay in control and avoid dependency on your family. Policies cover all types of in-home services, adult day care centers, assisted living facilities, memory care facilities, and nursing homes. There are other benefits in policies that make sure you get the best care available to improve your quality of life.
Don't forget that you cannot purchase a Long-Term Care Insurance policy with poor health. LTC Insurance is medically underwritten, and every insurance company has its own rules. Plus, premiums can vary over 100%, so be sure to speak with a Long-Term Care Insurance specialist to help you shop for the best coverage.
You can survive inflation, longevity, and declining health but don't delay. Being proactive with your planning means those golden years can still be somewhat golden.