The greatest unknown in retirement is your health. Two of the most critical investments that we can make now are to plan to cover uncertain costs and live healthy. Forbes’ article, “The Biggest Wild Card In Retirement And How To Deal With It,” notes that if a married couple retiring at age 65 wants to have 90% certainty that they can cover healthcare expenses in retirement (Medicare Part B and Part D premiums, MediGap premiums, and out-of-pocket drug expenses), they’ll need $265,000 (with high drug expenses upping it to $349,000). These numbers don’t include long-term care expenses. They can be as much as $10,000 a month.
Medicare won’t cover everything, so you’ll probably need MediGap coverage. 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 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.
Talk to the whole family. Talking money still may be thought of as off-limits, but it shouldn’t be. About 70% of married pre-retirees haven’t discussed healthcare in retirement and how to pay for it with their spouses. The study also found 70% of Americans haven’t had serious conversations about net worth, long-term care, or wills and inheritance with their parents.
Reference: Forbes (February 16, 2017) “The Biggest Wild Card In Retirement And How To Deal With It”