How to Prepare Financially for Retirement

The retirement years are all too often filled with trepidation and worry. Have I saved enough? How can I predict healthcare expenses? Will I really be able to retire? Will my lifestyle have to change? Should I downsize? These are important questions and it’s understandable you’d be concerned with all the unknowns; however, proper planning can help ease these worries so you can start enjoying retirement again.

Retirement living comes with big benefits, but many believe it also comes with a price tag so big you can’t afford it. In reality, retirement living may be well within reach for you or your loved one once you compare it to the true cost of living at home and learn the funding options available to help offset the cost. Let’s take a look.

The Cost of Retirement Communities

Senior living is an umbrella term for a continuum of care. As such, the cost is closely tied to the level of care you may need. Types of care on the continuum include:

happy women standing in living room with arms outstretchedIndependent Living – This type of senior living is less about care and more about lifestyle because it’s designed for active seniors who need little daily assistance and want carefree living with a range of social opportunities. Although there is little published data on the average cost of independent living, it is typically less than other types of senior living, ranging from about $1,000 to $4,000 a month.

Assisted Living – Consider this the next step in the continuum with onsite care, 24-hour supervision, and support with daily activities provided. Plus, you’ll still enjoy amenities and social opportunities similar to independent living. According to the most recent Genworth Cost of Care Survey, a private, one-bedroom apartment costs $4,000 per month on average.

Memory Care – Here you’ll find an environment specifically designed for those with Alzheimer’s disease and dementia that includes 24/7 support, structured activities, and specially-trained staff. There is also little published data on average costs for memory care because it varies so greatly; however costs typically range from $2,000 to $7,000 a month.

Skilled Nursing – This type of senior living is what you might consider the highest level of care on the continuum, with 24/7 nursing as well as physical, speech, and occupational therapists onsite. According to the most recent Genworth Cost of Care Survey, on average, a semi-private room is $7,441 and a private room is $8,365 per month.

Senior Living versus Aging at Home

The price tag of senior living may give you a bit of sticker shock initially, yet when you look a little deeper into the value that’s included within those monthly numbers, in some cases it can be less than aging at home!Senior Couple Talking To Financial Advisor At Home

While you may be comparing the monthly cost of senior living to the cost of your mortgage or rent, keep in mind your total cost of living at home each month also includes food, entertainment, and home upkeep. These costs are typically included in the monthly cost of senior living that you see above. In many cases, at least some utilities are included as well.

Not to mention extras like beautiful campuses, spacious accommodations, and amenities such as a pool, fitness center, housekeeping, and laundry services as well as a monthly calendar filled with clubs, classes, events, and outings that you may not have access to at home. But what’s truly invaluable is the peace of mind that comes with knowing you’ll always have care and support, if and when you need it.

Retirement Realities

One of the best things you can do is to educate yourself on what to expect. In general, you’ll need to replace approximately 70 to 90 percent of your pre-retirement income to maintain the same standard of living. That range depends on where you live and when you choose to retire, among other factors.

Based on Bureau of Labor Statistics data, Americans 65 and older spend an average of $45,756 per year or around $3,800 a month. In addition, Fidelity reports that a 65-year-old couple retiring in 2019 could expect to spend $285,000 on healthcare costs during retirement.

Also, don’t assume that Medicare, Medicaid and/or your health insurance will cover any long-term care you’ll need. In general:

  • Medicare only pays for long-term care if you require skilled services or rehabilitative care, and only for a short period of time.
  • Medicaid does pay for the largest share of long-term care services, but to qualify, your income must be below a certain level and you must meet minimum state eligibility requirements.
  • Health Insurance through employers or private health insurance typically cover only the same kinds of limited services as Medicare.

How to Prepare Financially for Retirement

Keep in mind that it’s best to have an idea of what to expect in order to know how best to prepare for retirement. And rest-assured, you may have more resources at your disposal than you realize. To get started, organize your financial documents including:

  • Bank and brokerage account information
  • Deeds and mortgage papers
  • Insurance policies
  • Monthly or outstanding bills
  • Pension and other retirement benefits
  • Social Security payment information
  • Stock and bond certificates


Then, consider consulting a financial advisor and/or estate planning attorney to discuss ways in which you might be able to maximize these resources in retirement:

Two seniors writing with pencils in notebooks at table

  • Insurance options including long-term care insurance and/or life insurance conversions
  • Pension, Social Security benefits and personal property such as your home
  • Programs in which you may be eligible like the Veterans Aid & Attendance benefit
  • Potential tax deductions
  • Savings as well as your investment portfolio

Funding Options for Retirement Living

women with paper receiptAs you prepare financially for retirement living, it’s important to understand the options available that may be able to help you offset the cost including:

Veterans Aid & Attendance Benefit – Wartime veterans or a surviving spouse may be eligible to receive a non-service connected pension (above the basic pension) to assist in paying for assisted living, home health care, adult day care, or skilled nursing if you meet certain conditions.

Long-Term Care (LTC) Insurance – LTC insurance can help pay for the cost of home health care, adult day care, assisted living, memory care, skilled nursing, and hospice by covering services typically not covered by health insurance, Medicare, or Medicaid.

Life Insurance Conversion – You may be able to convert an in-force life insurance policy into a pre-funded financial account that disburses a monthly benefit to help pay for needs such as home health care, assisted living, skilled nursing, and hospice.

Reverse Mortgage – In this type of home equity loan, homeowners 62 or older can access their equity to supplement retirement income. The lender will make payments to you based on a percentage of your accumulated equity.

Your Current Assets Can Also Help

Last, but certainly not least, look at the resources you may already have available. Consider selling or renting your home, for example. Do you have savings, stocks, bonds, or annuities? What about income such as Social Security or a pension? Any or all of these can also help make retirement more affordable.

For additional help in how to prepare financially for retirement, check out our Family Guide to Funding Senior Care & Housing today.

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