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Planning key to avoid becoming a bankruptcy statistic in retirement

Jason Urbaniak, wealth adviser for Oak Partners, says it's best to plan for retirement well before you stop working. 

According to U.S. Bankruptcy Court data, 819,159 people filed for bankruptcy in 2016.

And though that's down 6.9 percent from 2015, reports that people 55 and older account for 20 percent of those filings, a number that has doubled among seniors since 1994. Bankrupticies are decreasing, but seniors are filing in record numbers.

To prevent this, financial planning well before retirement is key.

Jason Urbaniak, a wealth adviser at Oak Partners, a financial and retirement planner in Crown Point, provided some insight.

“I help seniors with a complete financial analysis, which includes current and potential future health care costs,” he said.

“I advise to plan accordingly for early retirement before Medicare is available. This might include a younger spouses’ insurance, Cobra, or contributing to a Health Savings Account. Before Medicare eligible, we must confirm a game plan that includes an employer’s plan, Health Savings Accounts, and coverage gap between retirement and the age of 65.”

Urbaniak believes such a saving plan can allow for the cost of a family, children’s education, and so on.

“An adviser can help with a retirement analysis, which can help find some potential disposable income to save,” he said. 

Savings will slow as people move into full retirement, so early saving is critical.

Financial planning can expose shortfalls, Urbaniak said. “Our financial plan will uncover shortages in retirement income or assets along the way."

According to Catherine Collinson, CEO of TransAmerica Center for Retirement Studies, the main reason for bankruptcies and financial problems is skyrocketing health care costs.

“Americans are living longer,” Collinson said. “While that’s a good thing, it’s also a double-edged sword in terms of health care costs, which includes long-term care.”

Medicare does not cover long-term care, including assisted living, memory care, and the need for nursing homes. It also does not cover routine eye care, dental care, and hearing aids. “If you make a list of seniors' needs, many are not covered by Medicare,” Collinson said.

The 2016 national average costs for long-term care in the U.S. were $225 a day or $6,844 per month for a semi-private room, $253 a day or $7,698 per month for a private room. All other health care costs increase 6 percent annually, according to the Center for Medicare and Medicaid. Americans spent $3.2 trillion for health care in 2016.

Collinson said the increases make planning a challenge. “When you plan, you look at today’s health care costs, but too many unforeseen issues occur. It depends on your individual health and your spouse.”

Unplanned retirements also culprit

Another major issue is the residual effect of the Great Recession. “Many older workers were downsized during the recession,” Collinson said. “The 2016 TransAmerica survey shows that 60 percent of retirements were unplanned.”

The TransAmerica survey shows that more than 50 percent of those in unplanned retirements were still financially reeling from the recession.

“They took on unexpected debt in order to survive and now they are entering the next phase with expenses they didn’t plan on,” Collinson said. On top of that, home equity had bottomed out and new jobs were unlikely to pay the same. 

“Credit card debt doesn’t mean people spent recklessly,” Collinson said. “Sometimes it’s how they bought groceries and prescriptions.”

The TransAmerica survey shows that 42 percent of retirees just cover basic necessities, excluding health care costs; 37 percent cover expenses including health care costs. “Seniors are advised to pay off debt and health care bills, but that’s not always doable,” Collinson said.

According to the survey, 89 percent of seniors rely on Social Security for their income, with only 40 percent adding drawing a company pension or a 401(k).

So, many retirees return to the workforce. The Bureau of Labor Statistics shows that 36 percent of those 65 and older still punch the clock. That includes 20 percent of those 70 and older.

“Working retirement is a way of life for a rising number of Americans,” Collinson said.

“But it’s tough for many from a physical standpoint. Then there’s the erroneous perception that older means not as sharp. That limits better paying jobs.”

When the job and Social Security still aren't enough, bankruptcy becomes an option that allows those filing to retain their home in most cases, as well as their Social Security funds. 

Collinson also encourages seniors to investigate faith-based and community-based organizations for help.

“Depending on where you live, there can be several options designed to help seniors who are in trouble,” she said. “Many feel embarrassed to ask for help. This is where adult children can step in and help out by doing the digging.”

“A quality financial adviser and Fiduciary should put a plan together which does not just touch on the market and the analytics of money management, but also offers guidance on Social Security, healthcare and other retirement hurdles an individual might have,” Urbaniak said.

“If you feel like you’re only being offered products instead of planning and advice, it might be worthwhile to seek a second opinion.”