Long-term care isn’t a subject that we generally enjoy talking about. It’s difficult to even think about the possibility that we and the ones we love might need someone to look after us in our golden years. But as life expectancy continues to rise, so do the chances that we will require long-term care one day.
Long-term care takes a number of different forms. It’s not limited to stays in nursing homes (although that’s a significant component). Sometimes the elderly can do most things for themselves, but need help with certain activities such as bathing, housekeeping or medical needs. These needs can be met by assisted living facilities or home care providers, but they too cost money.
Making sure we’re taken care of as we age is critical to our quality of life, as well as that of our families. That’s why it’s so important that we plan for long-term care. There are several ways that we can do this.
Retirement Plans
When we think of saving for retirement, our primary concern tends to be keeping the bills paid when we’re no longer working. But it is possible to save up enough to cover any long-term care needs you may have. The catch is that you must start early and contribute the maximum allowable amount for many years.
Unfortunately, many of us don’t start saving for retirement as early as we should. We may even have trouble saving up enough to have a small amount of financial security. If you want to have enough of a nest egg that you won’t have to worry about money after you retire, you need to start saving aggressively from the time you get your first job.
Annuities
For those who are approaching or have passed retirement age, annuities are an attractive option for the provision of long-term care. These financial products are purchased from life insurance companies. The annuitant deposits money into an account, either in a lump sum or in payments. He then receives, either immediately or at a specified time in the future, payments from the annuity.
The insurance company may pay the annuitant in a lump sum or in payments. The payments may last for a certain amount of time, or for the remainder of the annuitant’s life. The proceeds of the annuity may be used for any purpose, including long-term care.
Long-Term Care Insurance
Long-term care insurance has become more popular over the last several years. In exchange for the payment of premiums, either in a lump sum or over time, the policy holder receives benefits when long-term care is required. However, there has been some debate over such policies’ usefulness.
When considering a long-term care policy, it’s important to look it over carefully. Premiums usually rise as the policy holder ages, and many policies do not cover the cost of inflation adequately. A lawyer or accountant can help you determine which long-term care policy is best for you.
Put Everything in Writing
In addition to financial planning, it’s important to make your wishes for long-term care clear before the need arises. You need to specify which types of care you prefer or are willing to accept, and designate someone to make decisions on your behalf if you are unable to do so. And all documents such as your will, living will and insurance policies should be kept in a safe place, with someone designated to retrieve them if needed.
No one enjoys planning for long-term care. But it’s something that needs to be done. Getting it out of the way early makes good sense, and it can help ensure that the money is there when you need it.
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For younger workers, retirement may seem like a distant event that doesn’t bear a great deal of consideration. Most of us realize that we should be putting some money away, but comparatively few actually do so. And those who do may not be saving enough.
Too many workers continue to rely on Social Security and pensions as their main source of retirement income, and see savings as a way to have extra money. But these days, that kind of thinking is seriously flawed. It’s entirely possible that Social Security may not exist in a few short decades, and even if it does, it could pay less than it does now when accounting for inflation. Pensions are also becoming a thing of the past. So it’s up to us to make sure we have enough retirement savings to live on.
How Much Money Do I Need to Save?
There are many different ideas regarding how much money we need after retirement. Some advocate saving up a few million dollars so that one can live off the interest. Others reason that if you pay off your debts by the time you reach retirement age, you won’t need anywhere near that much.
But most experts suggest that one should save enough to have 70 to 90 percent of one’s annual pre-retirement income each year after retirement for 20 years. These numbers should take inflation into account, which is generally estimated at 3% per year, as well as investment returns before and after retirement. The final figure will vary for each individual, but as you can see, this will add up to a substantial amount of money.
Once you’ve figured out how much you’ll need altogether, you need to calculate how much you must save each month to reach that goal. To do this, count the number of years until you plan to retire, multiply by 12, and divide your total by that number. If math is not your strong suit, you can find retirement calculators online that will run the numbers for you.
The Best Time to Start Saving Is Now
Even if it seems like retirement is eons away, it’s important to start saving as early as possible. Ideally, we should start saving for retirement from the time we start our first jobs and continue to do so consistently for the remainder of our working lives. But in practice, it rarely works that way.
Just remember that the earlier you start saving for retirement, the more painless it will be. For each year you postpone saving, you’ll have to save a little more each month to reach your goal. If you keep procrastinating for years and years, you’ll eventually have to put a significant portion of your income toward retirement. So there’s no time like the present to start planning for your golden years.
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It feels great to get a raise. It makes us feel like we’re being rewarded for all our hard work. It provides an incentive to keep doing a good job. And most of all, it puts more money in our pockets.
It can be tempting to start spending more money when we get a raise. Just a few extra dollars on each paycheck can make it possible to go out to eat once a week or start building up your wardrobe. But saving that extra money offers more long-lasting benefits, and it is relatively painless.
Think about it. You’ve probably been living on the pay you received prior to your raise for a year or so, and you survived that year. It’s not much of a stretch to be able to survive another year without that extra money. Of course you wouldn’t want to turn it down, but why not put it away to build an emergency fund, a college fund for the kids or a nest egg for your retirement?
And just imagine how much money you could save if you saved your raise every year. If you received the same percentage raise each year, you could put away over twice as much out of each check next year as you did this year. The following year, you could add a little bit more to it than you did the year before. As long as you can live on the same amount of money, you can increase the amount you save each year.
While you’re saving your raises, consider adding your bonuses to your savings as well. It’s tempting to go out and spend like crazy when we get a windfall of money, but it’s smarter to save it. Bonuses are money that we usually do not include in the budget, so we probably won’t miss them.
How to Save Your Raises
There are many ways we can put money into savings. But which is the best vehicle for saving raises and bonuses? That depends on your goals.
When it comes to practicality, you can’t beat investing in a 401K retirement account. 401K deductions from your paycheck are tax-free, and you will never have to pay taxes on that money unless you withdraw it before you reach retirement age. Many employers also match your contributions up to a certain percentage or dollar amount, so you’re essentially getting free money.
When you get a raise, you may be able to increase your contribution by the dollar amount of that raise. Or you might have to raise your contribution by a certain percentage. Your human resources department should be able to help you adjust your contribution to meet your goals.
Investing your raise in a college savings account might be a good idea if you have kids. Or you may choose to invest in stocks, bonds, or other investment vehicles. If you have more than one goal in mind, you might choose to divide your raise up among several savings options. If possible, consider having your contributions deducted from your checking account shortly after you get paid so that you’re not tempted to spend them.
If you’re looking for a way to save some money but can’t seem to make room in the budget, saving your raises could be the answer. Instead of adding the extra money into your budget, you can simply send it directly to savings and forget about it. In time, you can save up a substantial financial cushion.
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