Lengthening life spans meanthat more people will make it to age 75 and older—at which point,says the report, physical and mental health problems grow, creatinga faster and larger drain on savings. (Photo: Fotolia)

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A new brief from the Center for Retirement Researchat Boston College finds that not only will retirees face higher out-of-pocket health costsbut also the potential for financial mistakes thanks to cognitive declineand the problems caused by widowhood.

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This as more-meager 401(k)s supplant pensions and the SocialSecurity retirement age rises.

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Indeed, the report points out that as retirees becomemore reliant on 401(k)/IRA lump sums, which can be considerablysmaller overall than the lifetime benefits presented by atraditional pension plan, and as the full retirement age for SocialSecurity rises, meaning that “monthly Social Security checks willprovide less relative to preretirement income at any given claimingage,” future retirees as they age are going to be making do withless reliable income even as inflation eats away at what theyhave.

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Lengthening life spans mean that more people will make it to age75 and older—at which point, says the report, physical and mentalhealth problems grow, creating a faster and larger drain on savingsthanks to high out-of-pocket medical costs or financialmistakes.

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In addition, those older retirees will be coping with thoseproblems on the shaky and smaller sums provided by 401(k) plansjust as they are growing increasingly unable to manage morechallenging financial decisions — such as how to draw down fromthose accounts to achieve the maximum benefit from the moneyavailable.

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The rate of dementia, says the brief, rises quickly from 7percent for people in their early 70s to approximately a quarterfor those in their early 80s—and that means that those people areincreasingly at risk for making financial mistakes or being takenin by outright fraud.

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And the rise of out-of-pocket medical costs, even without theneed for long-term care, includes such items as Medicare Part B andPart D premiums, supplemental coverage, rising copayments anddeductibles and the costs involved with care not covered byMedicare.

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The report cites a recent study by McInerney, Rutledge, and King(2017) that “found that, for those ages 75+, these out-of-pocketcosts amounted to about 20 percent of their total income.”

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While that's “significant … but perhaps manageable” for mosthouseholds, the study says, about 5 percent of households end upforking over more than half their income and are probably compelledto eat into savings to keep ahead of expenses.

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And once long-term care enters the picture, wealth can beconsumed far faster.

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Then there's widowhood, which also poses a threat, particularlyto women — even though recently women's financial situations inretirement have improved, decreasing their risk of poverty inretirement, because they are earning more in the workplace.

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But if Social Security benefits are cut in a move to stabilizethe program, the report warns, “poverty rates could worsen again.”And because of the way widow's benefits are designed, “with a widowentitled to the larger of her own benefit or her husband's …widows' household income from Social Security drops more than itused to when a husband dies.”

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So while they may be less likely to end life in poverty, “a dropin their standard of living or the need to dig into their wealthmight become more common.”

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READ MORE:

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Top 15 states for retirement

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How much income do retirees reallyhave?

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Retirees spending more than they thought inretirement

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5 most, least tax-friendly states forretirement

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.