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The Unexpected and Often, Unplanned Cost of Retirement Healthcare

Published March 13, 2017 by Brady Cobin Law Group, PLLC

There’s no way to know if the years will be kind to you and your spouse. Taking good care of your health now, while adding healthcare costs to retirement planning, is a wise move.

Sometimes we are so focused on issues like relocation and caring for aging parents that we forget to plan for the big unknown of retirement: health and healthcare costs. A recent article in Forbes, “The Biggest Wild Card In Retirement And How To Deal With It,” reports that in order to be able to pay for health care costs in retirement, including Medicare Part B and Part D premiums, MediGap premiums and any out-of-pocket expenses, which vary dramatically from person to person, a couple will need to have $265,000 – $349,000. That’s just for healthcare costs, not including long-term care expenses.

Medicare won’t cover everything, so MediGap coverage is needed. You should also look out for Medicare premium surcharges, if your income is over $85,000 ($170,000 for joint filers). People say that “health” is the key to a happy retirement, but research shows that it’s also the biggest concern. Americans of all ages say that their top financial worry in retirement is that they or a loved one will have a costly health issue. Nonetheless, there’s a bit of a disconnect, even among those who are aware of this cost. Healthcare costs are frequently missing in retirement planning, research says. Fewer than 15% of pre-retirees have ever attempted to estimate the amount of money they might need for health care and long-term care in retirement.  Only 42% of pre-retirees have a health care directive that details the individual who’ll determine how medical care is carried out, if a spouse is unable to make decisions on their own.

There is some positive news. In a recent study, 91% of retirees said they’re willing to make healthier choices now to save money later, and 83% say they’ll review their health insurance plan options. With that in mind, there are some steps you can take right now. Starting a general retirement account can help cover extra health care costs. You should also take full advantage of tax-advantaged retirement plans and up your savings. You should also investigate if your employer has any specialized tax-advantaged healthcare savings options.

  • Look into a HSA or FSA. If you have a high deductible health insurance plan, you can save in a tax-advantaged health savings account (HSA). If you don’t use the money for current out-of-pocket healthcare expenses, you can invest it and save it as a retirement healthcare fund. In addition, a Healthcare Flexible Spending Account (FSA) helps cut costs on current year healthcare expenses. Some plans allow you to carry over a $500 balance into the next plan year.
  • Long-term care insurance. Only 30% of people believe they’ll need long-term care, but it’s really more than double that number. Seven in ten will need it at some point in their lifetimes and on average, they will need it for approximately three years. If you don’t want to purchase long-term care insurance, you’ll need to be certain that you’ll have resources available in case care is needed.
  • Bring the family into this conversation. Chances are good that your adult children do not have a good handle on what retirees face in terms of money and planning. A study found that as many as 70% of Americans haven’t even discussed retirement healthcare costs with their spouses, let alone with their adult children. This can be part of the family discussion about net worth, the expected costs of long-term care, overall expectations for health and lifestyle during retirement and in later years and what kind of a legacy they wish to leave behind.

Reference: Forbes (February 16, 2017) “The Biggest Wild Card In Retirement And How To Deal With It

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