Concerns about financial well-being in retirement keep many Americans awake at night.
About 43% of employees at small and midsize businesses, as well as 26% of retirees, are so anxious about being able to afford medical care in retirement that they sometimes can't sleep, according to the Principal Financial Well-Being Index compiled in August 2006.
Workers are also anxious about being able to enjoy the same quality of life they have now (42%) and being able to afford the basic necessities in retirement (38%).
Women are significantly more concerned with being able to afford the basic necessities than men are. Retirees are also unable to sleep because of their financial concerns, but the No. 1 fear among retirees is inflation's erosion of their purchasing power (37%).
5 keys to resting easyHere are some ways to ease your fears about retirement planning so you can sleep soundly:
- Plan for the financial transition. It is important to develop a plan to transition your retirement savings into a steady stream of income. Only 30% of current employees and 51% of retirees have a plan for turning investments into bills paid, the quarterly Principal study said. "Just investing the time to plan for the retirement transition with help from a financial professional . . . can make the difference between achieving financial well-being in retirement or not," says Dan Houston, Principal's executive vice president of retirement and investor services.
- Pay down debt before you retire. Both housing debt and consumer debt are rising for elderly families. The average debt for a family headed by someone age 75 or older rose from $7,769 in 1992 to $20,234 in 2004, the Employee Benefit Research Institute reported in October 2006, citing the latest available figures. Those approaching retirement age have increasing levels of debt as well. "You need to get your finances in order," says Craig Copeland, a senior research associate for the institute. "Having debt going into retirement is not the way to have a successful retirement."
- Evaluate your assets. Take stock of all the sources of income you're going to have in retirement. "You need to think about what sort of guaranteed income streams you have -- Social Security, defined benefit plans -- and also the amount you have in a 401(k) or other savings," says Emily Kessler, a staff fellow for the Society of Actuaries. "Figure out how much you need to live on, and factor in inflation." Knowing that you've got enough money coming in from various sources is sure to help you sleep more soundly.
- Health insurance is a must. If you retire before age 65, you must make sure you have health insurance. You may be able to qualify for COBRA coverage for up to 18 months after you leave your job. But even after age 65, "get access to some form of insurance to help you pay for those things that Medicare doesn't cover," Kessler says. Medicare does not cover long-term care or long hospital stays, warns Copeland. Supplemental insurance can help make sure your investments remain intact if major health problems arise.
- Take care of your health. Perhaps even more important than financial assets is investing in your health with healthful foods, exercise and preventive care so that catastrophic health-care costs can be avoided as much as possible. Making sure your retirement worries don't interfere with adequate sleep will keep you healthier, too. "Good sleep is important for good mental and physical health, including resistance to disease," says Timothy Monk, a professor of psychiatry at the University of Pittsburgh Medical Center. "Good sleep can be a predictor of longevity in seniors," he adds. Mary Carskadon, a professor of psychiatry and human behavior at Brown Medical School, says, "Poor sleep can contribute to the kind of illness that we typically associate with aging."
By Emily Brandon, U.S. News & World Report
Published Nov. 3, 2006