The U.S. is deep in the throes of a retirement financial crisis. An estimated one in five Americans 50 and over has no retirement savings, per AARP. And many retirees wind up heavily reliant on Social Security benefits in the absence of other income.
Part of the reason for this savings crisis boils down to misconceptions about retirement.
It’s natural for workers today to assume that their living costs will drop substantially once their careers come to an end. But many retirees end up needing more income than expected.
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A recent period of rampant inflation hasn’t helped things. Since 2021, retirees have learned the hard way that it’s important to plan for the unexpected.
But while it may be too late for current retirees to build cash reserves and put different contingency plans in place, younger Americans who are still working have a prime opportunity to do their share of saving and planning. And there’s one specific expense financial guru Suze Orman warns that everyone needs to think about.
Suze Orman says Americans are forgetting a key retirement expense.
Suze Orman issues warning on common but forgotten expense
Many workers know to plan for future healthcare costs. Fidelity estimates that the typical 65-year-old today will need $165,000 to cover their healthcare needs through retirement.
But that estimate does not include help with activities of daily living. And Orman insists that Americans need to better plan for that expense, especially among those who may not have built-in caregivers to fall back on.
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As Orman says, “As we age, it is natural (if not inevitable) that many things we do for ourselves today we may need help with later in life.”
Orman highlights a few specifics, including cooking, cleaning, bathing, and just generally getting around the house.
The problem is that many people might assume that help with daily living is a cost Medicare will pick up. But Medicare will only foot the bill for medical issues. This means that while it might pay for rehab following a surgery or injury, it won’t pay for non-medical assistance, or custodial care.
Put another way, Medicare does not consider help with aging a covered expense. But those who don’t have a built-in caregiver to help with activities of daily living may be in for sticker shock.
Genworth puts the average cost of a full-time home health aide at $77,792 per year.
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Suze Orman says one group in particular must prepare for long-term care costs
Although Orman insists that all Americans need to put a long-term care plan in place, women have to be especially vigilant.
“Women are at greater risk,” she says. “The 52% probability of needing major care breaks down to 46% for men and 56% for women.” And the reason boils down to women’s tendency to live longer than their male counterparts.
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“Many wives/female partners are the ones caring for a husband/male partner,” Orman continues. “Yet if and when the husband dies first, who is going to care for the wife?”
Orman says that in her experience, most older people with care needs rely on family. But it’s also not a solution everyone can count on.
Plus, caregiving can be a burden for loved ones. So while they may be willing to step up, Orman warns Americans that they may not want to put family members in that situation.
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For this reason, Orman says everyone should be doing their best to save for long-term care needs. And she also encourages Americans to look at long-term care insurance.
A long-term care policy could defray some of the costs associated with not just a home health aide, but other needs that might arise, like assisted living.
For many people, the optimal time to apply for long-term care insurance is during their 50s. At this stage, they may be more likely to secure affordable rates. But those shopping for long-term care insurance will ultimately need to strike the balance between scoring health-based discounts at a younger age versus paying those premiums longer.
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