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During the month of April, advisers and experts from the financial, education and business sectors come together to help younger people understand how to successfully manage their personal finances.
The lack of financial literacy among many younger Americans had been so widespread that in 2004, Congress officially designated the month of April as National Financial Literacy Month. And while helping young people become responsible money managers is critical for their financial stability, it is equally important that older workers become financially literate in order to prepare themselves for retirement.
What older workers may not realize is that many seniors are living solely on Social Security. Others are barely getting by on a combination of Social Security and modest income sources such as personal savings or part-time employment. Almost all are grappling with the staggering costs of prescription drugs, healthcare, food, caregiving and other living expenses. Not to mention the record-breaking inflation that is walloping working-and middle-class Americans of all ages.
Many seniors — especially older women — if they have any retirement savings, are at risk of outliving their money.
Near-retirees (aged 55-64), more than other age groups, are confronted by a mind-boggling array of choices, as well as life decisions that can affect their finances. Even with the life wisdom they’ve accrued over the years, many older Americans are not fully informed or prepared to make these choices. When to claim Social Security? Which Medicare plan to choose? Is it too late to save for retirement? How much money will I need? There are a few key areas where it is important for older workers to be as financially literate as possible, along with knowing where to turn for help.
Read MarketWatch’s Help Me Retire column
Social Security
Nearly half of all seniors rely on Social Security for all or most of their income, but older workers may not realize how modest these benefits are. The average monthly Social Security benefit in 2022 is $1,657. That’s less than $20,000 in annual income. Some Social Security benefits are subject to federal income taxes — and Medicare Part B premiums are deducted from them. That does not leave much income for the middle-class standard of living that many workers are accustomed to.
Older workers should also be aware that claiming benefits before the full retirement age (67 for people born in 1960 or later), can lower their Social Security benefits for life. In fact, workers can lose 25% to 30% of their full benefit by filing early. On the other hand, delaying claiming until age 70 can permanently boost a worker’s benefits by hundreds if not more than $1,000 per month.
Meanwhile, spousal and survivor’s benefits are not always intuitive, and many beneficiaries who don’t understand how the system works can be alarmed at the amounts they receive. For instance, a widow does not receive her own Social Security benefits plus her deceased spouse’s; she receives only a portion of their combined benefits. That means that a widow’s household income could drop from, say, $4,000 to $2,900 per month when her spouse dies. The same applies to widowers.
Read MarketWatch’s Understanding Social Security column
Americans seem to grasp that Social Security can be complex and confusing. In a recent survey by GoBankingRates, 30% of respondents said they need more education about the program — the majority of them in the 55-64 age group. Fortunately, there are resources for older people striving to learn how to navigate Social Security, including our own Delay and Gain website and the Social Security Administration’s online tools/portal.
Read: You could be getting the wrong Social Security benefit check – here’s how to fix it
Medicare
Most workers probably know that Medicare is a universal healthcare program for seniors, but might not understand that it is not free. Medicare Part A hospital benefits are paid for by workers’ payroll contributions. But beneficiaries pay monthly premiums for Medicare Part B (outpatient care) and Medicare Part D (prescription drug coverage). The 2022 Part B premium for most people is $170 per month. Traditional Medicare patients often also buy supplemental Medigap insurance, which runs from $107 to $410 per month. Then there are out-of-pocket costs for care. Fidelity Retiree Health estimated that an average couple age 65 may need some $300,000 in savings to cover health care costs in retirement.
Private Medicare Advantage plans can cost beneficiaries less in premiums than traditional Medicare, but beneficiaries may discover that their claims are denied, their networks of providers are limited, and their out-of-pocket costs can ultimately be higher — especially if they become acutely or chronically ill. The choice between traditional and Medicare Advantage is an important one, but many older Americans are not aware of the differences between the two. They can’t rely on television ads by private Medicare Advantage insurers featuring celebrities Joe Namath and Jimmy Walker for all the information they really need.
Near seniors should arm themselves with accurate, unbiased information before they reach the Medicare eligibility age of 65. The Centers for Medicare and Medicaid Services offers the online Medicare and You handbook. The State Health Insurance Assistance Program (SHIP) offers free benefit counseling for current and future Medicare enrollees. Among their counseling services, local SHIPs can help beneficiaries with limited income and assets determine if they qualify for Extra Help with the costs of their prescription drugs through the Medicare Part D Low Income Subsidy. In addition, our own Aging, Health, and Care resource also has helpful information on Medicare, Medicaid, prescription drugs, and other relevant topics.
Read: See how much you know by taking MarketWatch’s financial literacy quiz
Long-term care
Some seniors are able to afford long-term-care insurance. But for most, Medicaid ends up being the only resource to pay for skilled nursing care, whether in nursing homes or home-and-community-based care.
But Medicaid eligibility can be tricky. It requires knowledge of how the program works, which isn’t always intuitive. Seniors must meet strict income and asset requirements to qualify. A single individual, 65 years or older, must earn less than $2,523 in monthly income and have no more than $2,000 in countable assets to be eligible. Any other assets (other than one’s home) must be spent down to that level before a senior is eligible for Medicaid. For married seniors, each spouse’s income and assets can affect the other’s eligibility. The more financially literate near retirees are, the likelier they are to successfully navigate this complex system. Seniors can learn more about Medicaid at Benefits.gov and on our own Medicaid webpage.
Retirement savings
Americans generally aren’t saving enough for retirement, which can be perilous with employer-provided pensions disappearing and the obvious volatility of market-based 401(k) plans. According to USA Today, “The average retiree will need 16.4 times his or her ending salary to cover the cost of retirement.” That means an older worker earning $60,000 a year would need to put away $984,000 in order to retire comfortably. It is, of course, never too late to begin saving for retirement.
Read: No matter your age, here’s how to tell if your finances are on the right track
Near seniors (ages 55-65) can take steps to put money away for later years or shore up the savings and investments they do have. This is where financial literacy can really make a difference. Older workers with disposable income may want to consult a trusted financial adviser. Others can learn more about smart savings and investment from free, unbiased resources such as the financial literacy booklet published by the Senate Special Committee on Aging or the Foundation for Financial Planning.
Other financial issues
Growing old in the 21st century can be complicated, and there are myriad other financial issues that people approaching senior status should know about: Protecting themselves against the growing number of Social Security and Medicare scams; Identity theft, which also is on the rise; Reverse mortgages (Should they trust Tom Selleck when he says a reverse mortgage is completely safe?); and planning for unexpected life events.
Many Americans — including near seniors — are unprepared for even a $400 emergency. Older people can be one emergency away from financial crisis, whether it be an unexpected illness or the death of a spouse. The Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau have excellent online resources regarding these issues.
It’s important for older workers’ families to become financially literate, too. That way, they can better help their loved ones with financial decisions in old age if the need arises. Financial literacy may help families’ own pocketbooks, too, as more than 30% of midlife adults provide regular financial support to their parents, according to a recent AARP survey. In addition, some 40 million adults are actively caring for older family members as of 2020, a 20% increase from just five years earlier.
A lack of financial education and preparation as we consider our own retirement can have serious consequences. A growing number of senior households are more in debt today than in the past. A 2019 report found that the number of elderly households (65+) carrying personal debt has risen to more than 60%. The data show that “senior households are more likely to have a mortgage, revolving debt, and even student loans.” Seniors living on modest fixed incomes are less likely to be able to dig themselves out of debt — and may be stuck with it for the rest of their lives. Becoming more financially literate before retirement can help prevent older people from falling into hardship.
Financial literacy for older Americans is learning about their own vision for retirement, what it’s going to take to achieve that vision and what’s the backup plan if things don’t work out.
It’s understanding that while there are some great programs like Social Security and Medicare to help keep seniors from falling into poverty, there are plenty of other options to consider far ahead of any need.
Our advice? Workers in their 40s and 50s should start learning, planning and saving now. When considering aging and retirement, knowledge isn’t just power, it’s the cushion that can soften the harder edges of growing old.
Max Richtman is President and CEO of the nonprofit National Committee to Preserve Social Security and Medicare in Washington, D.C.
