The financial security of our senior population is a topic of great interest today, especially to those who are reaching retirement age or are caring for aging parents. Daily news reports on the state of our economy include matters of great concern to seniors, such as rising healthcare costs and the soundness of Social Security.

Knowledge and preparation are key to avoiding some of the most common obstacles seniors face. We’ve broken down the key financial challenges for seniors into six main categories, and in this first of our two-part article, we’ll cover the first three: housing, debt and healthcare.

Senior Housing

One of the biggest and hardest decisions for some is when to sell a beloved home and downsize. While many wish to remain in their own home for as long as possible, maintaining a home and the expenses that come along with it may not be the best financial option. Replacing a furnace and air conditioner or a roof can mean either a large outlay of cash or a significant loan. A home can soon fall into disrepair when regular maintenance is not completed, which affects the value of the home when sold.

The baby boomer generation – those born between 1946 and 1965 – carry more mortgage debt than any earlier generation. Monthly mortgage payments that were manageable when working can become a burden after retirement and drain money set aside for retirement. If you’re retiring in the next few years and you have the money available in savings, it may make sense to pay off your mortgage. The future monthly expense you save by paying off your mortgage sooner can be deposited into an interest-bearing account to cover unexpected emergencies and expenses that could arise.

Monthly mortgage payments make sense for retirees who are paying a lower interest rate, are in a higher tax bracket, can deduct the interest and can do it comfortably without sacrificing their standard of living. It’s always best to talk to your financial advisor about how selling your home or paying off your mortgage will impact your individual situation.

In addition, depending on the size of the home and the mobility of the resident, maintaining and staying alone in a home can represent a greater risk for accidents. At some point, downsizing to a maintenance-free community may be a realistic consideration for safety, convenience and expense management. Selling your home can relieve you of maintenance costs and bring peace of mind, with the advantage of paying towards the purchase or rent of a new residence.

When it comes to senior living, staying active is the best way to maintain good health and independence. Seniors today are living longer and leading more active and healthier lives. This certainly plays an important role in the available choices relating to housing. Look for options that provide access to tools to stay healthy, secure and independent, such as programs to prevent falls and manage chronic conditions.

Senior Debt

Having outstanding debt can play a big part in how comfortable retirement will be financially. More seniors are carrying debt into retirement than ever before, and the amount of debt has increased significantly over the past decade. Besides healthcare – which leaves one in four seniors near bankruptcy at the time of death – credit cards and housing are common sources of debt. What’s more concerning is a recent study found seniors often cut important needs to increase their cashflow, such as skipping pills or meals and forgoing car and home repairs.

Paying off debt should be a priority prior to retiring. Experts recommend starting by making extra payments towards the highest interest rate debts and paying the minimum payments on others. It’s important not to incur additional debt during this commitment so you can keep moving in the right direction. Using pre-paid spending cards are one practical way to stay within a budget while maintaining the convenience of using a card for purchases.

When things become overwhelming and it’s impossible to keep payments on track, it may be time to look at more radical measures to eliminate the debt. While not the first choice, consolidating debt through a home equity line of credit can offer the necessary funding to pay off high-interest rate credit cards and bring peace of mind. And as a last resort, you may consider withdrawing from a retirement account to pay off debt. Keep in mind, if you withdraw before age 59 ½, you will be subject to a 10 percent penalty. Speak to your financial advisor to understand which debt solution is best for your situation.

Keep in mind, continuing to work a few years longer to reduce outstanding debt is a sound solution for a more comfortable retirement.

key financial challenges seniors face

Healthcare

Rising costs and multiple choices make healthcare a difficult subject to understand and navigate. As people head into retirement, there’s a misconception that Medicare will pay for everything. Once it becomes evident this is not the case, the search for a suitable and affordable care plan begins.

According to the 2019 Social Security Fact Sheet by the Social Security Administration, the population of Americans 65 and older will increase from approximately 56 million today to over 78 million in 2035.  One in four people over age 45 are not prepared financially for sudden long-term health issues and by the time people reach their senior years, nearly one in five will incur more than $25,000 in out-of-pocket care costs.

Specialized eldercare and skilled nursing facilities that treat Alzheimer’s and dementia patients are the most expensive care options and are expected to triple to 14 million by 2050. This is an important factor to keep in mind while you’re considering how long to stay at home since home-based healthcare can cost a quarter of the price of skilled facility care.

Insurance coverage for seniors ranges from private health insurance coverage to public health care. If a senior citizen has private health insurance from an employer or third-party agent, then this should be sufficient to cover most health care needs. However, for seniors who have retired from work they may be without health insurance. This is where Medicare comes in. Medicare is a federally provided social health insurance program that is open to all seniors 65 and older.

Selecting a Medicare plan that suits a senior’s needs can be a daunting task due to the myriad of choices.  Some of the key factors to consider are coverage, premiums, out-of-pocket expenses, access to providers, and insurance companies. There is a tool to assist in this process at www.medicare.gov, or you may rely on your insurance agent, trusted friends or family, or a doctor or pharmacist to help narrow down the options.  There is also an open enrollment period each year to review and make any necessary changes.

It’s important to start researching care plans that will best fit your healthcare needs and financial situation as early as possible so you don’t miss the deadline for enrollment or find yourself without necessary coverage.

Read my part two article on this topic, in which I cover three more key financial challenges seniors face: outliving funds, fraud and the job market.

Next steps:

  1. Check out our other articles on staying the course of your retirement plan and managing investment risk when nearing retirement.
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  3. Use our financial calculators to estimate social security benefits, determine how long your retirement savings will last, and more.