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Jim Lentini: Retirement planning challenges seniors

Posted: January 12, 2009 8:33 p.m.
Updated: January 13, 2009 4:55 a.m.
Today Americans are living longer and more vivacious lives.

Medicare and Social Security must now provide for many more individuals than planned for when it was created in the 1930s.

According to the Centers for the Disease Control and Prevention's report, The State of Aging and Health in America 2007, life expectancy in the US has increased from 47 years for those born in 1900 to 77 years for those born in 2001.

Although longer lives equate to increased health-care expenditures, the more concerning trend is this expense is now shifting increasingly to individuals and families as many adults are becoming responsible for aging parents.

Unless you have a job with retirement benefits that also include health insurance, a couple reaching average life expectancy will need approximately $300,000 to cover health insurance premiums and extra expenses.

According to the Employee Benefit Research Institute, this figure could increase to $550,000 at age 95, assuming Medicare benefits remain at current levels.

With so much focus on saving for retirement, many Americans are not planning ahead for the expense for healthcare not covered by Medicare after they turn 65.

Long term care insurance premiums become more expensive the older you are when you decide to purchase it; it may be more difficult to qualify for as you get older.

As part of retirement planning, you must consider these additional costs and the effect it will have when you are on a fixed income.

Converting your retirement savings into income can be a delicate process.

The Trinity Study in 1998 showed that by withdrawing 4 percent (indexed for inflation) from a diversified portfolio over a 30 year period, you will not run out of money.

Newer research indicates it may be possible to sustain a withdrawal rate of 5 to 6 percent which could increase your withdrawal up to 50 percent.

This requires active management of when and how often portfolio rebalancing occurs, as well as an understanding that you may have to reduce your withdrawal rate in a bear market.

Variable annuities with a guaranteed income rider providing principal protection, step up options, and deferred growth are better options for a secure retirement income to cover fixed expenses.

Your principal is secure in a bear market and continues to grow in a bull market.

Consult your financial advisor to develop a withdrawal strategy for the best options to help you reach your goals and needs.

Regular reviews of your situation will ensure your plan is reasonably meeting or exceeding your goals and you are receiving the most out of your retirement.

Jim Lentini is president of Lentini Insurance & Investments Inc. in Santa Clarita. His column reflects his own views and not necessarily those of The Signal.


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