Failing Health during Retirement Brings You through 3 Distinct Financial Stages
©Shane Flait 2010

Determining how much income you’ll need to get you through retirement can be tricky. We can’t predict how long we’ll live nor how our health will fare over the duration. It’s wise to consider how failing health may bring you through different financial stages – each with its own income demands. That’s what this article is about.

Your retirement income pretty much comes from three sources - your company pension, Social Security, and your savings. The first two sources are pretty steady with cost of living adjustments in your Social Security benefits. The need to draw on your savings is influenced by the stage of health you’re in and it associated financial demands.

To begin your retirement, you’ll need what is often called a ‘replacement income’. This is some percent of your working income typically ranging from some 50% to 80% or more.  It presumes you’re living in retirement as you were when working but have no ‘work-related expenses’ and perhaps less income taxes to pay.

However, your income needs during retirement years will change over time. That’s because our capabilities, needs and desires change according to our aging process - and the health status it puts us into. Three financial stages based on these changes are:

1.      healthy, active and independent stage 

2.      minor health problems, slowdown and somewhat independent stage, and

3.      Infirmed and dependent stage

1. Healthy, active and independent stage:

This first stage hopefully typifies the beginning of your retirement when you’re most active and in good health. You may do a lot of traveling as your retirement reward. And it’s time to spend some of those savings too. 

Depending on the amount of activity and traveling you do, your retirement income, here, can equal or exceed your working income. This stage can last as long as your ‘travel’ money holds out and your activity pursuits remain high – hopefully into your mid 70s anyway.

2. Minor health problems, slowdown and somewhat independent stage:

In this second stage, you’re still living independently but you start to run into minor health issues. You’ve done your traveling and now you’re slowing down. You may even stop driving. This stage may present the lowest demand for income – maybe as low as 50% of working income.

The effects of ‘Old Age’ are setting in. Your genetics have a lot to do with when this stage begins and how long it’ll last.  Hopefully, this may be the last stage for many – no matter how long they live.

3. Infirmed and dependent stage:

The full effects of ‘old age’ will infirm many retirees eventually. Three out of four future retirees will require long term care in their homes and nursing homes. Costs can be substantial – rising to as much as $80,000 per year – or more - for nursing home care.

You can control the expenses of the first two stages by your lifestyle and activity choices. Because of that control you can plan for what replacement income you really need for them.

Your infirmed situation in stage 3 undermines your control of lifestyle and expenses. Your need for help will force you into the ‘nursing home’ model of care. Who pays for these costs is determined by what provisions you made for this circumstance.

If you have no assets, Medicaid will pay the costs - which may be part of your planning. Otherwise you’ll pay through your long term care insurance or directly out of your wealth and savings.

 Shane Flait is a writer and educator. Get more info at www.EasyRetirementKnowHow.com