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How to Face Some of the Greatest Challenges of Retirement

By George Budwell, Dan Caplinger, and Jason Hall - May 2, 2016 at 11:47AM

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Here are three ways to make your life easier in retirement.

Americans are currently staring down one of the biggest retirement crises since the Great Depression due to a lack of personal savings, high debt levels, and the continual erosion of retirement benefits from private employers. While these problems can seem insurmountable to those in their golden years, our Foolish contributors offer three great suggestions below to help retirees navigate these choppy waters. 

Jason Hall: One of the biggest challenges most retirees will face is providing for their -- or their spouse's -- long-term care. According to the U.S. Department of Health and Human Services, almost 70% of those over 65 will need long-term care at some point, and married couples face a 90% likelihood that one of them will need long-term care. And on average, we're talking about three years of care needed.

And long-term care is expensive:

Image source: U.S. Department of Health and Human Services.

Yes, Medicare and private insurance will pay for the majority of costs related to medically necessary care, but the kind of assistance with daily activities that millions of older Americans eventually need won't be covered. For instance, if you suffer a fall -- the No. 1 cause of injury and death to people 65 and older -- Medicare will pay for your treatment, and even a stay in a rehab facility if needed. But if you need help bathing, getting dressed, preparing meals, or other basic activities, you're on your own. 

You may only need a little help, and your spouse or a family member may be able to provide that help. But if you're alone, or need more care, this can quickly become a burden on unpaid caregivers. 

Unless you've built up a significant nest egg that will pay for your care, it's worth considering long-term care insurance. Furthermore, don't wait until you're old or in need of care before you buy it, because quite frankly, you won't qualify, or it'll be too expensive. Just like retirement savings, long-term care is something you should start thinking about -- and preparing for -- while you're still young. 

George Budwell: Since the 1980s, the responsibility for managing retirement funds has increasingly shifted from professional companies to individual households. At the same time, financial markets have experienced multiple boom and bust cycles over the last three decades, putting a premium on an individual's ability to properly manage risk.

During the financial crisis of 2008, during which the stock market fell by over 40% at one point, for instance, a wave of people were forced to go back into the workforce because they had allocated far too much of their retirement funds to risky assets such as stocks. Unfortunately, this problem of improper asset allocation among older individuals has only grown worse since the financial crisis, according to the AARP Public Policy Institute. 

To avoid this pitfall, I think a good rule of thumb is to lower your exposure to equities to a maximum of 25% of your total retirement account upon reaching retirement age. That way, you won't wake up with a massive hole in your net worth if the market takes another turn for the worst, but you'll still be able to take advantage of some fantastic income-generating opportunities like large-cap dividend stocks. 

Dan Caplinger: One of the biggest challenges you'll face in retirement is figuring out when to start taking your Social Security benefits. Most workers have the right to start getting monthly Social Security checks once they turn 62, but the full retirement age under the program is currently 66. In order to compensate for the fact that those who claim their benefits early get them for a longer period, the Social Security Administration's formula for determining your monthly benefit reduces the amount you'll receive. Currently, if you take benefits at 62, you'll get 25% less per month than if you waited until age 66.

What gets even more complicated is that the decision you make doesn't just affect you. If you're married, your spouse will be entitled to survivor benefits on your work history after your death, and the amount of survivor benefits will be based on the claim decisions you made. Similarly, your spouse's ability to claim spousal benefits during your lifetime will depend on when you decide to apply for your own benefits. The decision of when to take benefits ends up being based on very personal, individualized factors. Just being aware of all the rules covering Social Security is important so you can make the best choice possible. 

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