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Recently The Wall Street Journal published two interesting but fundamentally misleading articles, “Here’s What a $2 Million Retirement Looks Like in America” and “Here’s What a $1 Million Retirement Looks Like in America.” The mean amount with which Americans retire is $426,000, averaging those who retire with more and those who retire with less. The median amount, the amount at about which most people retire, is much closer to $126,000. The eight profiles of people who retire with much more, people who are more likely to subscribe to The Wall Street Journal, is not in itself misleading. What is fundamentally misleading is the focus on cash flow and the failure to address either age or, for the most part, health.

Living within one’s means

Charles Dickens and many other writers have reminded us that happiness is a positive cash flow: that being in debt can rob us of serenity and hope and, ultimately, lead to tragedy. About 87% of retirement-age Americans own a home. If they follow the advice of most retirement counsellors, they retire mortgage-free. This is especially important for people who have an adjustable rate mortgage. While the effective (purchasing power) cost of a fixed rate mortgage will fall with inflation, the dollar cost and the effective cost of an adjustable rate mortgage will both rise. Similarly, credit cards should always be paid off in the month the bill comes due: retirees cannot hope for a raise to somehow cover the interest. Freezing credit with the three credit reporting agencies can prevent others from accessing the good rating built up over the years and be unfrozen if a need to borrow emerges.

But this is not enough to live within one’s means. The years of low interest rates and low inflation are over. Retirees refer to a “fixed income,” meaning Social Security retirement benefits, which average $1,843.46 in 2023. But the Social Security cost of living increases never keep up with inflation. They are based on a chained COLA. This chained COLA does not address the highest retirement expenses: medical and personal care. While about half of Americans have other sources of income, however modest, in a time of stagflation and recession, the dollar cash flow, let alone the purchasing power, from savings and investments is uncertain and is unlikely to cover increasing costs.

Anticipating declines in Social Security, Medicare and Medicaid

Those costs are, to an extent, predictable. They are predictable in part because they have been and are expected to be met by public programs. Even without the retrenchments proposed in Congress, in five short years, these public programs will markedly decline. In 2028 Social Security retirement benefits are scheduled to decrease to 80% of the current amount. In 2028 Medicare Part A, often referred to as “hospital Medicare,” is expected to decrease to 83%. In 2028 Medicare Part B, “doctors’ office and lab Medicare,” is expected to be bankrupt. Medicare Advantage, run by insurance companies which receive 105% of the cost of traditional Medicare and regularly deny or limit coverage, in some cases as a matter of course, will likely increase in cost and decrease in benefits. Medicare home health already provides only up to six of the twenty-eight maximum hours per week allowed by regulation. In Texas Medicaid home health pays the workers so little that it must be supplemented out-of-pocket to be provided at all. Nursing home Medicaid is extraordinarily difficult to access without first paying privately for two or three months.

This decline in Social Security, Medicare and Medicaid connects with the second major deficit of those articles in The Wall Street Journal. Of the eight profiles, only one couple is reported to have “learned that health matters as much as wealth when in comes to retirement planning.” Yet by age 80 only 10% of us do not have significant health problems. Health matters more.

Before Social Security and before Medicare and Medicaid were added to the Social Security Act in 1965, more people had retirement health insurance. Most relied on their families. Today, we have fewer siblings. We may well be the last man standing. We may also have children. But they may live at a distance. Those nearby may be see their hours consumed by work and childcare. And as we and our children age, they, too, will encounter health problems.

Whether we retire with $2 million or $146,000, we must anticipate paying for medical and personal care. In five short years there may be no alternative.

 

Elder law attorney, Terry Garrett, CELA, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.

 

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