How to Find Shelter From Financial Storms

Five steps seniors can take to protect themselves from the impact of crippling federal deficits.

By SHARE

There are many doubts about whether our national government can lead us out of our current economic malaise. The recovery is limping along, but that's in spite of Washington, not because of it. Some view the sequester as an embarrassment and believe it has developed into a painful mistake.

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Meanwhile, the nation must endure another fiscal crisis and a possible government shutdown this fall. We have had to live through this and similar soap operas so many times in recent years that it's tempting to just say to heck with it, and let them close the doors for a while. That's not the grown-up way to govern, but there doesn't seem to be many grown-ups left in Congress.

This political theater is of more than passing interest to older citizens who are close to or in retirement. We don't have much time for our retirement funds to recover from the last recession. True, stock prices have staged a recovery in the past few years that is nothing short of sensational given how sluggish the recovery has been.

[See: 12 Surprising Facts About Boomer Retirement.]

But near-zero interest rates have plagued bond returns and retirement income. And while the immediate heat is off government deficits, we still face enormous challenges in reining in Medicare, Medicaid and Social Security.

None of the credible deficit-reduction plans issued in recent years have figured out how to balance the nation's books without significant reductions in these programs. While there have been tippy-toe steps toward needed changes in the tax code, nothing meaningful has emerged. Even if it did, how would we ever get Congress to take a serious look?

It's against this backdrop that changes to senior safety-net programs will occur. The exact form of these changes will be fought over during coming years. But is there any doubt that seniors will be asked to make do with less? If the economy and federal budget situations weren't worrisome enough, the picture for seniors gets even more dire with the arrival of millions of baby boomers turning 65 and joining the ranks of entitlement program beneficiaries.

Pretending there are silver linings or magic (and painless) bullets to fix things for seniors is the stuff of political rhetoric, not reality. There are five things, however, that seniors and their families should consider doing to protect themselves from the financial storm that's already here and likely to get worse. You've probably seen some if not all of them before. But now, the stakes of not paying attention are very, very high.

[Read: Taxed or Not: Where to Hold Your Retirement Cash.]

Understand Social Security. Studies show most people mistakenly begin claiming Social Security benefits too soon. Benefits can begin as early as age 62 but, if deferred, rise by about 8 percent a year – plus cost of living adjustments for inflation – until age 70. Couples also often fail to take advantage of Social Security's spousal benefits. Learning about when to claim benefits, and which benefits to claim, can be time well-spent. Boston College's Center for Retirement Research maintains a Social Security Claiming Guide that is a good one-stop source. Once you've learned more about your options, you'll be able to find additional details on the Social Security website.

Shop for better Medicare policies. Millions of seniors augment basic Medicare protection (parts A and B) with supplemental policies (part C) and drug coverage (part D) from private insurers. These policies are renewed every year during a fall open enrollment period. However, relatively few seniors shop carefully for better rates and coverage terms for these private policies. Instead, they stick with their present policies and thus lose lots of money.

Use free Medicare benefits. The Affordable Care Act expanded the menu of free and reduced-price preventive health procedures for Medicare beneficiaries. Perhaps the most appealing free procedure is a free wellness visit with your personal physician. Millions of Medicare beneficiaries have gotten free physicals using this program, but millions more have not. And, even before the ACA, newcomers to Medicare were entitled to a free physical during their first year in the program. Roughly 3 million Americans celebrate their 65th birthdays every year. Only a few percent of them get a free physical. Obamacare also expanded Medicare's menu of preventive health care services. Use them!

[See: Why Gen X Lost Big in the Great Recession.]

Cut personal spending now. Many people have already cut spending to the bone. But for the many millions of Americans with some budget flexibility, the economic and political messages are chillingly clear: Until further notice, expect less support and rely more on yourself. The consequences of not setting aside more money for future needs are going to be worse with each passing year.

Max out your 401(k) and IRA. The need for better retirement investing habits has been hammered home, time and time again. Even so, large numbers of current workers and retirees leave money on the table. They fail to take full advantage of employer matches in 401(k)s. They also fail to take advantage of all the tax breaks for IRA contributions. When they change jobs, they too often take lump-sum distributions to meet current financial needs, instead of rolling over the accounts and continuing to build their nest eggs. It's past time to do better, folks.