Financial Problems for Seniors in Retirement

Projections for the future are always estimates, and reversal of financial status looms large for seniors in retirement. Seniors face lower incomes, higher medical expenses, deflated home values, high utilities and Social Security insecurity. Making money last through the end of life becomes a retirement lifetime goal for seniors.

Considerations

Many seniors must live on less. Social Security provides about 40 percent of preretirement income and seniors need about 80 percent of preretirement income, according to the Social Security Administration. Retirees can live on about 20 percent less than needed before retirement, but income equal to Social Security benefits must come from somewhere else. Social Security suggests interest, a pension plan and savings to supplement Social Security benefits. Employment is also a possibility, and work-at-home jobs are ideal for seniors.

Lifestyle

Financial problems in retirement can occur when seniors do not change their lifestyles to suit the new income constraints. This includes purchases as well as expenses. Seniors must prepare emotionally for retirement, recognize the restrictions and make it work to avoid financial problems. The AARP suggests downsizing, as a smaller residence may reduce living expenses. Downsizing combined with relocation to a less-expensive area can make a significant difference in relieving financial problems for seniors.

Preparation

Seniors can avoid some financial issues with preparation. Paying off a mortgage before retirement can provide the security of not losing a home to foreclosure. Reverse mortgages do not provide security; they cost money and security as well as an inheritance to children. The AARP suggests that seniors "tread carefully" in approaching a reverse mortgage. Another AARP suggestion includes taking a roommate instead of a reverse mortgage. Estimating retirement needs and finding a way to meet those needs can help avoid financial problems in retirement. Retirement wants and expectations need to be level with income capabilities.

Medical Expenses

Seniors receive Medicare at age 65, but it comes at some expense. Seniors pay a monthly premium, plus a copayment of 20 percent unless they have additional insurance at a monthly cost. Medical expenses and time lost to illness can present unexpected financial problems for retirees. Some seniors fall into the "doughnut hole" of medicine expense, where they pay 100 percent until they reach a major medical amount. Medical care reforms in 2010 and years following may alleviate some senior financial issues related to medical expenses, but uncertainty exists. The combination of fragile income status and fragile health contribute to financial problems of seniors.

Managing Finances

Seniors don't always manage finances well. They may lend to others, donate to causes, play the lottery and even overpay for basics. Financial problems may be of their own making, but often stem from age or forgetfulness. A loving relative can help seniors avoid some financial problems with frank discussions and periodic review of bill paying. For example, telephone expenses for seniors are often far higher than necessary, with no provision for economical long-distance calling. This occurs over years of increases with no change in telephone plans. The telephone company does not notify seniors that cheaper plans exist, and seniors often do not ask. Other utilities may add to the financial burden.

References

• AARP: Social Security Alone Isn't Enough
• "USA Today"; Mortgage Crisis Robbing Seniors of Golden Years; Stephanie Armour; June 2009
• AARP: Reverse Mortgages Ripe for Abuse
• AARP: Reverse Mortgage Alternatives
• Social Security Online: Publication 05-10035 Retirement Benefits
• Bloomberg Businessweek: Health Benefits: Medicare's Costly Doughnut Hole