Health care cost must be an important consideration of your retirement plan.
“Nothing makes people luckier than preparation.” I came across this terrific quote recently and thought it made the very best case for the importance of financial planning.
Over the past few years, I am finding that unanticipated or unexpected health care cost is one of the greatest causes of anxiety among clients nearing retirement or newly retired. According to a recent USA Today report, health care cost has increased an average of 6% since 2002, a pace well above either the inflation rate or retirees incomes. I see retirees over age 65, paying over $6000 per year on health care cost, even with medicare benefits!
Some of the key out of pocket expenses not covered by medicare are: premium deductibles, medicare supplemental insurance, co-pays, prescription drugs, dental care, and the biggest nut of all, long term care. So let’s look at 6 important steps that can be taken to be better positioned for health care expenses that can take a huge chunk out of typically scarce income resources in retirement.
1. Take care of your health, in so much as what you can control. Eat healthy, exercise regularly, don’t smoke, or stop smoking.
2. Work for as long as you can. At the very least, try to delay retirement at least until you are eligible for full social security retirement age. The ability to continue to maximize savings is the biggest benefit to earning an income for as long as possible.
3. Start stashing money into a health savings account (HSA). This is savings vehicle you can establish with your employer, that allows you to put aside dollars pre-tax, for medical and dental expenses with high deductible plans. For 2012 the contribution limit is $3100 for a single person and $6250 for a family, with an additional $1000 catch-up for age 55 or older. The great features of HSAs are their portability and tax free withdrawal for medical and dental expenses.
4. If you are nearly or newly retired, I recommend that you meet with a health care/medicare specialist to help you determine what plan is most suitable for you. Many financial advisors, including myself, have such a specialist on our team to serve our clients.
5. Considering securing long term care insurance. At around age 55 is a good time to start looking at plans, as premiums over age 60 are significantly higher.
6. Save as aggressively as you can.
Judith Lee, CFP®