50 may be the new 30

Some of us could live 40 years after retirement. Do you think you’ll have enough to retire?

It’s not that you don’t know the answer; it’s that you don’t want to think about it.

Americans on average are living longer now than ever before. A 65-year-old can expect to live an additional 19.2 years, five more than in 1960. By 2050, the number of Americans 85 and older is forecast to reach 19 million, up from 5.5 million in 2010.

But with advanced age often comes illness. Three out of four Americans older than 65 suffer from health issues like cardiovascular disease, diabetes, cancer and chronic respiratory illnesses. Of those 71 or older, 15 percent (3.8 million people) have dementia, and that number will swell to 9.1 million by 2040, according to federally financed research by the RAND Corporation.

It’s true that people are living longer and are healthier, but people who intend to work longer often are forced into retirement due to health reasons or employment changes. You also may not anticipate your own longevity, especially with today’s medical advances.

But it is critical that pre-retirees change their current mentality of planning to live 20 years in retirement. Too often, once retired, they discover they’re facing 10 or more years of expenses that they didn’t plan for.

What’s more, the cost of future long-term care for baby boomers could be more than three times what they’re expecting. Boomers 50 and older estimated the future annual cost to be nearly $79,000. But the average nursing home costs $84,000 a year (though costs vary widely between states), and this number could rise to $265,000 by 2030.

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Only a lucky 30 percent of the population is estimated not to need long-term care after age 65, so the other 70 percent should keep an eye on costs, since they vary substantially by location.

 The potential costs of health care for seniors, even with Medicare coverage, could bankrupt them if they suffer from a serious illness or accident. Even if Medicare is a good government program that helps seniors manage health care costs, there are still some situations where the costs could be devastating without the proper planning.

For instance: Medicare Part B, which covers doctor visits, outpatient treatment and emergency room visits, has a deductible and copay. There also is a monthly premium of $104.90 -- and higher for those whose income is more than $85,000 for a single person, or $170,000 for couples.

After the $147 annual deductible is met, Medicare pays 80 percent of the Medicare-approved charges. The remaining 20 percent copay is paid by the individual, and it can amount to tens of thousands of dollars if that person needs extensive treatment. The problem is, there is no limit to the 20 percent.

“Imagine paying 20 percent of the cost of chemotherapy or open heart surgery or even a knee replacement. That is why only about 4 percent of the people have just Medicare A and B.”

Ninety percent of people who work with a financial adviser are happy with their retirement income plan, and 87 percent of those are confident with their plan, according to a Franklin Templeton survey. Also, 86 percent of respondents who work with an adviser are more likely to understand their plan. But for respondents without an adviser, only 44 percent are happy and confident in their retirement income plan and only 48 percent understand their plan.

The true measure of a retirement plan’s success is based on whether employees are saving enough to have adequate income in retirement. This means most Americans need to save between 11 and 15 percent, including employer contributions, over their working careers to replace 85 percent of income in retirement.

In determining whether clients should purchase long-term care insurance or self-insure, the question is whether the client can easily handle the incremental cost of one or both spouses entering a continuing care community, compared with current living expenses that might be saved. Though every situation is different, a basic rule of thumb is that a client with more than $2.5 million in investable assets, including the value of a downsized home, may want to self-insure rather than buy long-term care insurance.

But this rule of thumb works in areas with lower long-term costs, not in more expensive cities like New York or Los Angeles.

For instance, one client I know with $5 million in investable assets is now considering a New York facility that will cost $125,000 a year (compared with the $75,000 that might be more common in North Carolina). In this case, because the client also wants to leave some assets to heirs, purchasing long-term care insurance would be recommended.

Ballooning care costs and the potential savings have made it more attractive. Keep your eyes open: You can preserve a lot more with proper planning and documentation.