By Mitch Adel, Certified Elder Law Attorney, Managing Partner, Cooper Adel & Associates
When it comes to retirement and estate planning, retirees face a notably different set of challenges that their parents did. Unlike the “Greatest Generation”—who retired with a basic social safety net that covered the two most important components of retirement— income and healthcare—Baby Boomers find themselves in much less certain (and far more turbulent) circumstances.
When WWII veterans and their contemporaries were retiring, Social Security and Medicare were relatively healthy programs, supported by a booming population of working Americans. The problem, however, is that this favorable demographic imbalance has not continued. As Baby Boomers begin to move into retirement, the burden of funding retirement programs has become far more difficult to bear their children. There are three primary factors that have further muddied the retirement and estate planning waters: the ongoing problems with government pension management, a new wave of complex tax laws that have made years of estate planning obsolete, and the impact of the Affordable Care Act (ACA). The cumulative effect of these issues—much of them taking place shortly after many Americans have only just begun to recover from the stresses of the recent recessionary cycle—is to make planning for a safe and secure retirement a far more complex proposition today than it has been in the past.
The reality is that the rules of the game have changed in some significant ways. If Boomers do not adjust their legal, financial and healthcare planning strategies to evolve and adapt to these new realities, they are in trouble. Boomers who base their retirement on what their parents did will likely experience poor or even disastrous results.
A worrisome diagnosis
Of all the issues that today’s retirees need to be factoring in to their thinking with regard to retirement and long-term financial planning, the Affordable Care Act is potentially the most significant. While the true near-term and longer-term impacts of the Affordable Care Act remain to be seen, there is little doubt that healthcare fundamentals going forward will be very different for America’s seniors. One of the defining characteristics of the ACA is the way in which it recalibrates the social contract: instead of younger Americans supporting their parents, seniors are now being asked to take on some of the burden of supporting today’s youth.
For Medicare recipients, reimbursement rates to healthcare providers will be reduced by $716 billion over the next decade. The ACA achieves these cuts by scaling back the Medicare reimbursement rate from its current level of around 81% of what private insurance pays, to a leaner (and, some would argue, unsustainable) 56%—which is the current reimbursement rate for Medicaid. While doctors, hospitals, clinics and other healthcare professionals will bear some of that burden, it seems difficult to envision a way that seniors will not take a hit. Some estimate that seniors may be forced to ante up more than $450 billion over the next ten years—this would be, by far, the largest share of the costs needed to fund the changes mandated by the ACA.
Seniors who currently utilize Medicare Advantage programs may also be in for some cuts in the next ten years. Participants in the program, which permits Medicare recipients to supplement their coverage with private insurance, may see their benefits trimmed by about $136 billion. The bottom line for seniors? With increased costs and reduced accessibility to healthcare providers, traditional assumptions about how much money you need to safely retire may quickly become obsolete. At a time when there are more retiring seniors than ever before who will require healthcare, this is a worrying trend.
What seniors can do
The first and possibly most important step that any retiree or pre-retiree can do is to appreciate the scale and scope of the problem. It is never a good idea to take your financial security for granted—today more so than ever. Business as usual will not get it done. Educate yourself and your family about these new realities, and consider how they will impact your current retirement planning strategies. Be proactive and be engaged: plan carefully for your financial and legal future, and do so with the understanding that the foundations of financial stability for seniors have changed in some profound ways.
With approximately 10,000 Boomers turning 65 every day until the year 2029, none of these structural problems are likely to get better anytime soon. The burden of responsible investment, sufficient savings for a healthy and happy retirement, and the implementation of sophisticated estate planning strategies falls directly upon the backs of Boomers. Subsequently, it is almost always a good idea to secure the counsel and guidance of a trusted retirement planning and wealth management professional or a certified elder law attorney to help develop a retirement and savings strategy that accounts for these changes.
Mitch Adel is a certified elder law attorney and managing partner at Cooper, Adel and Associates, A Legal Professional Association. With offices in Centerburg, Chillicothe, Monroe and Sidney, Ohio, Cooper, Adel & Associates has clients statewide and offers regular seminars to educate seniors on critical legal and financial issues. For more information, visit http://www.CooperAndAdel.com.