Don’t Run Out of Money in Retirement

Last week the Cutters spent the weekend in Dighton to watch Phoebe’s softball tournament. It was a beautiful weekend, and Phoebe brought her best “stuff.” She pitched one heck of a Game One with 11 strikeouts, 2 walks and one unearned run for a win 11-1 against Somerset’s travel team.

Game two was a different story. Phoebe got the call to pitch against the top team from Warwick. It was a pitcher’s duel until the last half of the last inning. With runners on first and second, two outs, with a 2-2 count, Phoebe brought the “heat.” Unfortunately, Warwick cranked one for a deep single, scoring the winning run.

You know, as a parent, it did not matter to me who won that game. What mattered to me was watching the kid really take a big step forward in the game of life. Emotionally, physically, and mentally, giving it her best and never giving up. Phoebe learned a valuable lesson last weekend. It is not whether you win or lose, but it is how you play the game. She never gave up.

As I was driving home in a car full of sleepers, I rolled to a stop light on Main Street in Taunton. Sitting there thinking about the game, I noticed to my right a local foodshelf. It struck me that the majority of people lining up for meals or beds were seniors. I wondered what caused so many senior citizens to rely on the shelter for such a basic need as food and shelter. Seniors greatly outnumbered the younger folks there, too.

When I got home, I did a little digging. Did you know, according to the USDA Economic Research Service, as recently as 2015, 2.9 million households with a senior aged 65+ experienced “food insecurity”? And get this, nearly twenty-seven million American households – roughly four in 10 – will run out of money in retirement, according to new research from the Employee Benefit Research Institute (ERBI). The study found that the aggregate retirement deficit facing Americans is currently at about $3.83 trillion. Add to the equation the fact that Social Security benefits will lower by 2034 (unless something changes in the law), and the ERBI sees that deficit ballooning to $4.06 trillion.

Hmmm . . . this is not good.

Those are some scary – and big – numbers, so let’s bring it a bit closer to home. The ERBI assessed that the average shortfall per individual age 60-64 was $12,640 to $62,127, depending on factors such as gender and marital status.

No one wants to run out of money in retirement. So this week, let’s take some time together so help us understand what’s contributing to this shortfall, and what you can do to keep it from happening to you.

One challenge stems from the changing nature of employment and benefits. More than a third of private sector workers don’t have access to an employer-sponsored retirement plan, according to the Pew Charitable Trusts. Pew also reports retirement plan eligibility drops generationally for younger workers, with more than 40% of millennials unable to access a retirement plan.

The ERBI says that eligibility and enrollment in such plans have “a significant impact” on the average retirement deficit. If you have access to an employer-sponsored plan, I suggest you use it, especially if your employer offers any sort of matching benefit.

Closing that gap may also require you to adjust the age at which you begin to take Social Security benefits. Many retirees hope to make it to their Full Retirement Age (FRA), but many do not, either because of health issues with themselves or a loved one or some other factor. But by delaying the onset of Social Security benefits until age 70, recipients can increase their payout up to 132% of their full benefit.

Health care is another area where many retirees are chronically underfunded. Even with Medicare eligibility beginning at 65, retirees face steep out of pocket costs. An average retired couple age 65 in 2019 may need about $285,000 saved to cover health care expenses through the course of their retirement, according to Fidelity.

Medicare also doesn’t cover long-term care, which can be the most significant retiree medical expense of all. Someone turning 65 in 2019 has almost a 70% chance of needing some long-term care, according to the U.S. Department of Health and Human Services. There are generally three ways to pay for long-term care: out of pocket; by becoming eligible for Medicaid; or with private insurance.

I find that some people will end up paying out of pocket for long-term care. These folks either have the assets to pay, can tap into the equity in their home, or have some other means such as spending down their assets. Keep in mind that the average time spent in a long-term care facility is about three years, so this may cost a few bucks. For those who don’t want to spend down their assets to pay for long-term care, a second option may be Medicaid planning, a specialized area of legal work which can reposition assets to achieve Medicaid eligibility. Pursuing this avenue carries many restrictions and other factors to consider so please make sure you seek a qualified retirement specialist who has the experience to see if Medicaid planning is an avenue for you to pursue.

A third option to consider is either traditional or asset-based Long Term Care insurance (LTC). Long-term care insurance may be an appropriate solution for folks to get the coverage they need, but it’s not for everyone. Some items to consider are potentially high premiums, you have to qualify for it health-wise, and you need to also consider the potential savings compared with the potential out of pocket costs, should the need arise.

A Traditional LTC insurance policy requires the payment of a monthly premium and pays out benefits only if the policyholder requires long-term care. The premiums can be hefty, and are not refunded if you don’t need the care.

Asset-based LTC works a bit differently. Asset-based LTC involves a life insurance policy that offers an additional rider (usually for additional annual cost) to help cover long-term care benefits. If you don’t need your LTC benefits during your lifetime, the insurer pays a death benefit to your beneficiaries. That way you know the premiums you’ve paid are going to benefit you and your family, one way or the other.

Regardless of what LTC insurance you’re considering, understand what you’re buying. It’s critical to know what your benefits are, the coverage limits, exclusions, and when benefits are triggered.

Folks, the “Wizards in Washington” debate plenty on what to do about the problems facing retirees today, but unfortunately, there’s been very little forward motion. Proposals range from bolstering Social Security to the creation of automatic retirement accounts for more workers. With lifespans growing in retirement, the rising cost of health care, inflation and other factors, people are getting squeezed like never before.

I wish the game of retirement and softball were similar; I really do. I wish it was not about who wins or loses in retirement but how you play the game. Unfortunately, it is not. Relying on a food shelf or other charitable services is not the retirement that anyone visualizes or deserves. It’s crucial to have a solid retirement system built to secure lifetime income in retirement – so you don’t run out of money. Now is the time for you to put yourself in the highest probability of financial success.

Be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at

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