Avoid unnecessary expenses and worries: what you definitely need to do before retiring in the USA - ForumDaily
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Avoid unnecessary expenses and worries: what you definitely need to do before retiring in the USA

There are many factors to consider for those about to retire, but by making a few financial decisions early on, you can protect yourself from the risks that lie ahead. Start thinking about long-term care, health insurance and retirement costs before you say goodbye to your job, reports USAToday.

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According to the US Department of Health and Human Services, 70% of Americans will need some form of long-term care in retirement, with an average annual cost of more than $100. The big question at this point is not whether retirees will need long-term care, but how they can afford it.

Long term care insurance

Long-term care insurance can help supplement some or all of the long-term care costs Americans face today. Typically, long-term care insurance offers daily coverage up to a maximum annual coverage. This daily allowance may cover skilled nursing facility care, which may otherwise be prohibitively expensive.

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For Americans looking to bridge the gap between their savings and long-term care needs, long-term care insurance is an attractive option, but comes at a cost. Because a high percentage of Americans will need long-term care, the cost of long-term care insurance can be prohibitive. However, according to the AARP, healthy Americans aged 60-65 are at an optimal age to purchase long-term care insurance due to a combination of affordable monthly premiums and overall lifelong premium savings. Buying this coverage today can help cover unexpected long-term care costs.

Make a health care plan

When it comes to planning for retirement, one of the biggest hurdles has to do with health insurance. For most Americans, retirement health insurance includes Medicare eligibility and the purchase of an additional Medicare plan. However, Medicare eligibility begins at age 65, so the years between retirement and Medicare eligibility are important.

Before you leave your employer, find out about employee benefits. Few benefit plans allow employees to continue group health coverage after they stop working. COBRA insurance, however, can provide a buffer by offering at least 18 months of continuous coverage under the employer's plan. It should be noted that permanent coverage under COBRA often costs an employee more than their employer's plan, as employers often subsidize the costs.

Another way to close the gap between retirement and age 65 is to purchase insurance on the open market. Purchasing this coverage is often impractical as premiums are likely to be high, especially for those over 60 years of age. People with pre-existing medical conditions may be denied outright.

When considering retirement health insurance, often the most important consideration is bridging the gap between retirement and Medicare eligibility. Understanding your benefits, as well as the benefits that COBRA gives you, is an important way to protect against unexpected health costs when you retire.

Use a basket strategy

As you approach retirement, the ebb and flow of the markets feels less like turbulence than like a threat to your future standard of living. One way is to implement a basket strategy in the early years of retirement.

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The basket strategy works like this: the retiree creates two savings baskets, one long-term and one short-term. The short term finances a retiree's lifestyle and contains two to four years of spending conservatively invested. The rest of the assets are in the long-term basket, but they are invested more aggressively. Theoretically, a short-term basket is protected from market volatility, while a long-term basket locks in market profits. Since a recession lasts an average of four years or less, the short-term basket finances a retirement lifestyle, weathering any market downturns. A great option for creating a basket strategy is to transfer old retirement plans to retirement accounts and then invest the appropriate funds.

Like long-term care and health insurance, planning ahead for retirement spending can pay dividends down the road. Long-term care needs, health insurance costs, market volatility. All these things are out of our control. By developing a strategy today, you can plan for these scenarios and make sure they don't adversely affect your retirement.

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