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Saving for the golden years

Once again the matter of medical insurance is fast approaching My major medical Cobra policy will be terminated on Dec. 31; and according to Charlie Gibson of ABC’s Good Morning America program, 60 percent of Americans worry about the cost of medical insurance and how they will survive financially when they retire. A part of GMA also features a segment called “Living Longer, Living Better” and recently invited financial advisor Melody Hobson, the president of Area Capital Management in New York, to talk about survival after retirement and the fact that medical insurance is a major financial problem. The information she gave was a rude awakening and may be a little too late for me and other retirees, but I thought it important enough to share with those young enough to still benefit from it.

For those who may not know, a Cobra policy is one offered by some employers when the employee retires. The employee is still insured with the employer’s company, but now pays for the major medical policy for a select number of months. In my case it was 18 and I started paying $329.14 a month that began at the beginning of my retirement on July 1, 2004. Since I am too young to receive Medicare benefits, I also sought other coverage before my Cobra runs out and now I am insured by AARP Medical Advantage Plan that began in September at $205.25 a month. This means that I am paying policies totaling over $500 a month, which is my biggest expense and proves Hobson’s statement. I want to thank at this time Delores Jones, a caller, at this time who informed me about this insurance after I wrote a column on finding other coverage when I retired .

According to Hobson, the normal retirement age set by the Social Security Administration, if you were born before 1938, is now 65. If you were born after 1938, the normal retirement age has been delayed until age 67.

“People today are actually retiring four years earlier before their grandparents and that creates an interesting situation,” she said. “People are retiring earlier and living longer, which means that our financial situation must really be buttoned down.”

Here are facts that Hobson pointed out. The first thing you want to know before you retire and the first place to start is to find out how much out-of-pocket cost you are going to have, which mainly includes healthcare insurance; what is Medicare going to cover; and what will you have to pay. It will also be important to know how much money you are going to need such as you make X and you are going to need X+?.

If you want to retain the same lifestyle after retirement that you had while working, you must make sure that you save enough money while still employed. For example, If you are age 35 today and making $40,000 a year you must save at retirement, age 65, for your life expectancy of 78, $400,000. That means that you must save $5,600 a year. It is being reported today that life-expectancy changes are also taking place so if you live to be 120 years old, you would have to save $750,000 at the age of 65 which also means a savings of $11,000 a year.

Financial advisors are saying that you should have 60 to 80 percent of your money in stocks even if you are in your 50s or 60s because of the life-expectancy changes. Therefore, you should strive to save earlier and work longer because by doing this, not only will your money you save be able to grow and compound longer, but Social Security benefits also change. For example, if you are 35 years old and make $40,000 annually and retire at 62, your Social Security benefit will be about $1,000 a month. If you work five more years to age 67, that benefit jumps to $1,500 a month. The difference over the course of a year is $6,000.

Even though I retired early, all is not lost. I am now working part-time, along with a few other sources of income, and compensation pay from my employer, has allowed me to do some investing. But the most important things for all of us to do and to learn to help us survive retirement years is to stay out of unnecessary debt, save wisely and not live above our means.

Walls is a former News-Herald reporter and writes a regular column.