Many older Americans were excited to receive a 1.7% cost of living adjustment (COLA) for their Social Security payments in 2013, but that excitement has been soured by rumblings of Medicare cost increases. According to Millionaire Corner’s Adriana Reyneri, “COLA, Medicare, and Retirement Security” are all closely related. Premiums for Medicare Part B are rising and the Social Security Administration worries that they will offset the COLA being given to those receiving Social Security. Increasing health care costs are eating away at many Americans’ retirement funds. While annuities are a good way to protect retirement income and receive guaranteed monthly payments to supplement Social Security, many investors are reluctant to purchase them.
In 2013, Medicare Part B premiums are estimated to increase 9%. These premiums are usually taken out of Social Security payments, so it’s possible that COLA increases will really not even increase the checks retirees are receiving. With 56 million Americans getting Social Security payments right now, the Social Security Administration had hoped to increase their purchasing power with the COLA. Americans are already worried about their retirement savings, so these added health care expenses are tough to swallow. The insurance industry has been working to inform retirees about their options with long term care insurance and annuities, but the millionaires researched aren’t flocking to the products in huge numbers.
By far the largest unexpected cost for retirees is for medical care. The Insured Retirement Institute says that healthy retirees who are 65 years old can expect to spend well over $300,000 on medical costs over their remaining lifetime. Men will spend an average of $369,000 and women $417,000 on their health care expenses. This money really eats into retirement savings, even with a good insurance plan. This issue is so important that President Obama and Governor Romney have been debating this hot topic of health care and Medicare during this election season.
Even with health care costs eating away at many investors’ retirement savings, only 35% of wealthy investors have any type of long term care insurance and fewer than that have bought annuity products. There are quite a few reasons for the reluctance when it comes to buying these types of insurance that will protect you in your retirement. Long term care insurance can have high premiums and many people don’t even want to think about the fact that they may be in a nursing home someday. Investors worry about liquidity with annuities and some think they will fare better in the markets by managing their own retirement fund. Using a portion of their retirement savings to buy an annuity, perhaps one with a long term care insurance rider, could really benefit retirees by paying out guaranteed monthly income to meet basic living expenses.
Written by Rachel Summit
Follow Finance Mama on Twitter http://twitter.com/#!/financemama