January 5, 2011

5 Important Stories for Retirees

Time for one last look back at last year. CBS Moneywatch.com posted a story last week that caught my eye. It was a list of the top 5 news stories from 2010 that had to do with retirement. I thought you would find their selection interesting. I have added some comments and thoughts of my own. You may disagree with some of what I have to say. In that case, I certainly hope you will comment at the end of this article to add your voice to a debate that is crucial to us all.

The Passage of Health Care Reform topped their list of the stories that could have the biggest impact on retirees going forward. The potential positives and negatives have been debated to death so I'm not going there. The change to a Republican-controlled house could very well make a lot of what happened last year moot. If money for various parts of the law isn't provided, not much will happen. If various state efforts to not participate are allowed to proceed the law will not be able to function. If some court rulings stand the central part of the law will be eliminated making the rest of it not affordable. The fate of 30 million uninsured citizens, the size of our federal deficit, and the affordability of insurance through private insurers are all directly affected.

So, what do we do while we wait?  Take more responsibility for your own health maintenance. Eat better, exercise more, understand the cost-savings of preventive care, buy generic drugs when possible, and question the need for tests and procedures that seem designed to simply protect doctors or rack up extra charges. In the highly unlikely event that the Health Care Bill ends up exactly as passed costs and personal responsibility will shift. Get used to it.

The Release of the Deficit Commission Report. Not surprisingly, the suggestions included in this report brought forth howls of protest from those supporting programs suggested for cutbacks. While everyone demands deficits be cut, absolutely no one wants anything that affects them to be part of the cuts. Obviously, such a selfish stance cannot work. It is impossible to spend more than we make as a country, yet continue to ask government to pay for things we think are our right.

There will be cuts in Social Security and the retirement age will go up (not in our lifetime), Medicare's waste will be attacked (a bit), and the Pentagon will no longer have access to unlimited funds. Why? Because we will have no choice, unless it is the loss the the country's entire middle class, hyper-inflation, and the purchase of most of our assets by foreigners. But, it is going to make the yelling and partisanship of the last  few years seem mild in comparison. The real losers will be the poorest, sickest, and most vulnerable of our citizens. They are most likely to suffer the most severe cutbacks.

Higher Retirement ages in France and Greece trigger protests . This was an interesting choice for the third most important retirement story of the year, but the author is probably correct. The riots in France over the increase in retirement age from 60 to 62 and protests in Greece over a similar change from 61 to 63 were hardly unnoticed by the rest of the world. Most Americans, with the choice to retire as early as 62 or receive full benefits at 65 or 66 probably have a hard time sympathizing. Meanwhile Bolivia, decided to turn common sense upside down and reduced the full retirement age to 58.

These events are the outcome of debt-ridden governments trying to rein in entitlement spending, and keep pension systems from going broke (I have no idea what Bolivia was thinking !). The debt commission's suggestion that U.S. full retirement increase over the next 50 years or so seems extremely cautious by comparison, but does reflect the reality of people living longer and the system being broke.

As an interesting aside CBS reports on the results of a study that correlated early retirement with mental dysfunction. According to the study, countries with the lowest retirement ages, like France, Italy, and Spain scored lowest in cognition tests among their older citizens. What's the connection? I'd suggest this may show that keeping active and engaged in your later years is one of the best ways to reduce the odds of getting dementia or Alzheimer’s.

Generating Adequate Income from Retirement Savings.  With CD rates hovering around 1%, Money Market Accounts paying much less, and Social Security having no monthly increase for the second year in a row, it is easy to see why this has become one of the top stories for retirees this past year. Trying to make ends meet when energy, food, and health costs are rapidly rising just as rates on fixed investments plummet is increasingly difficult. Stocks remain volatile. Experts warn against municipal bonds as cities and states face huge deficits.

There is no simple answer. The quick return of higher interest rates doesn't seem to be in the cards. Cutting expenses can only help so much. At some point the only things left to cut are essentials.  For those on a fixed income that was adequate before, the next few years do not look very encouraging. The hard truth is you’re on your own when it comes to figuring out the best approach for you.

MetLife Halts Sale of New Long-Term Care Insurance. This is a story I read but its importance didn't register. CBS Marketwatch.com is correct in drawing attention to an important issue. Even with adequate health insurance through Medicare and a supplemental policy, the average 55 year old will still spend almost $200,000 on out of pocket medical expenses during the rest of his life. Nursing care expenses average close to $5,000 a month, and Medicare doesn't pay for long term care.

For years we have been advised to consider buying longterm care insurance to help with these overwhelming costs. Now, the 4th largest provider of these policies has stopped selling them. It is a safe bet that other companies will follow. For those still willing to insure someone the premiums and exclusions will certainly increase.

There isn't really a a positive story among these five. Even the potential benefits of health care reform come with added costs and large does of uncertainty. So, what is the underlying lesson? The age of individual responsibility is on us. The time when we could count on the government or social institutions to solve all the problems that come with aging is rapidly drawing to a close.

Another answer? Maybe we will see a resurgence of family taking care of family. Maybe the multi-generational household will become the norm. Maybe that is not such a bad thing.

Your thoughts? Would these stories been in your top 5? Do you have a different thought on any of them? Let me know and we'll talk about it.

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  1. If I were among the writers at Moneywatch, I probably would have included information about forced early retirement due to joblessness among working adults in their late 50's and early 60's. Thanks for even coverage of these topics. I know the health care reform bill is a touchy subject, and you covered it with equanimity. I say that even though suspect I may be on the opposite side of the debate from that of many people in retirement age.

  2. Good Morning Linda,

    Forced retirement is an important topic that does directly affect way too many people. Indirectly it affects tens of millions more. I'd agree it was one of the most important stories of the last few years.

    Today is the first day of the new Congressional session and gridlock is already being talked about. It is going to be a difficult time for our country.

  3. Met Life’s decision will have about as much impact on the future of the long-term care insurance industry as IBM’s decision to stop selling personal computers had on the computer industry. In short, “zero impact”. You can read more here:


  4. I appreciate your sharing a different view on the Metlife story. Even though you are involved with the Long Term Care Insurance business that doesn't make your opinion any less valid than anyone else's. I assume you probably know more about the state of this industry than the CBS reporter who picked the stories.

    As a lay person, the Metlife story does seem to me to hold the potential for causing some problems in this segment of the insurance industry.

    But, as you correctly point out, headlines are designed to grab readership. How Metlife's decision affects the LTC market and those of us who depend on that type of coverage will be something we all need to follow closely.

    Again, thanks for adding your perspective to the discussion and providing the web site link. It was worth reading.

  5. Thanks, Bob.

    To add a little more perspective, the insurer that created the LTC insurance industry (C.N.A.) stopped selling new policies about 8 years ago. At that time, C.N.A. had the 3rd largest share of the market (exceeded only by John Hancock and Genworth).

    C.N.A. had started selling "nursing home insurance" in the mid-sixties.

    They stopped selling new long-term care policies for a few reasons:

    1) They'd re-designed their product and it was not very good compared to other policies, so their sales plummeted.

    2) Every corporation, has a limited amount of capital and human resources. C.N.A.'s parent company came to the conclusion that the ROI for LTCi was not as high as the ROI from other product lines. Most insurance products can generate double-digit profits for the insurers. LTC insurance usually generates profits in the "single-digits".

    When C.N.A. stopped selling new long-term care policies, no one predicted the doom of the LTC insurance industry. After all, they were the "founders" of long-term care insurance, and they were the 3rd largest seller of LTCi policies. You'd think that would have meant the end of the industry, right???? ;-)

    But, for whatever reason, be it political or something else, Met Life's recent announcement has resulted in some "journalism" that would make William Randolph Hearst proud.

    Fear certainly generates more hits than common sense.

    I appreciate your willingness to examine and discuss this issue sensibly.


  6. Scott,

    Thank you for the follow up information. It helps clarify the situation and provides more details to what is an important issue.

    I'm always happy to allow all sides of an issue or topic to voice an opinion here. After all, I don't know what I don't know.

  7. Bolivian life expectancy is 62 years- and medium age is 21...that could be why the retirement age is lowered.

    As far as CBS reports- maybe the older people are not as interested in things outside anymore? Some people consider that dysfunction. Europe reported about 3.3 million cases of Alzheimer's three years ago- the US had 4.2 million. I would say CBS is just winging it - as normal.

    I have a chance that my kids could take care of us. We have already discussed a tiny house behind one or both of their houses. Ours is more out of the desire to share rather than money. Actually, we will probably end up pooling resources with one of the children. Together we can live better lives overall.
    Of my extended family- one sib does not have children, two others do not have great relations with theirs, the last is going to have plenty of money. Multigenerational house? That has only been "out of style" for two/three generations. Divorce is a big stinker in that room though.

    Long term health insurance- forget it for us. It is tons of money and we would not be able to pay premiums in the end. Better to go for that tiny house while we are "young". I really think this is a total insurance scam (and my dad had it- he paid far more in then he ever got out). But that is me- we don't "do" insurance.

    The generation of income is REALLY scary to me. We have plenty now--- but if inflation hits and they "stabilize SS and federal pensions" then we could be in trouble- no matter how much we save. I just cannot live that fear. Being retired right now is important to my husband. Since his family does not have long histories...we are going for it.

  8. Hey Janette,

    You checked on the Bolivian life expentancy..great job! Now, that lowered age makes some sense.

    The dementia finding does seem a bit too convenient. It could be all sorts of things, like poorer health care or diet. I retired quite early but I'm not worried about that causing mental dysfunction.

    I'm not going to purchase long term insurance, either. But, I am really pleased that Scott added his comment and additional information above. Encouraging discussion of all sides of an issue is important.

    My wife would love to have an extended family housing situation, but it isn't really workable. The kids are nicely settled and I think it is best for us to be in a situation with assisted living and eventually nursing care available on site.

    Thanks very much for your detailed comment. I'm glad the post gave you the opportunity to give us your insights.

  9. Those are indeed significant stories. More significant is finding anything that you can influence and control. That used to be something that Americans could depend on- that they had the power to make a difference in their own lives. Recently forces have been destroying that. Destroying jobs. Destroying the value of our currency and destroying the freedom we used to have from oppressive regulation.
    It is time for a revolution or a capitulation!

  10. Hey Ralph,

    The lack of sense of control over one's own destiny is a troubling development of the past several years. The anger and vitriolic public discourse are examples of this feeling of things being out of our control.

    I might argue that the sense of control was more illusion than reality anyway, but that doesn't change perceptions.

    I truly hope we have a third choice besides revolution and capitulation.

    I will attempt to take a look at this topic again next week in a post about complexity. I'll look forward to your thoughts.