Why would someone who does Financial Planning be so concerned with their client’s health? Beyond the obvious reason, that we deeply care about our clients and want them to live a long and healthy life, health care costs can have a dramatic effect on a person’s finances. They present a particular challenge for retirees. Not retiring yet? This still applies to you, since the more time you have to prepare, the better off you’ll be!
Missed Opportunities and “Fun Facts”
- Not having a power of attorney, medical directives, and a will. Should something happen to you, even if temporary, you’ll want someone to be able to take care of your expenses, and receive the information on your illness. If married, perhaps your spouse. If single, maybe one of your parents.
- If there are people dependent on your income, you need to have your income insured. You’ll want it to be a multiple of your annual salary. Term insurance is the most cost effective solution for this purpose.
- Take advantage of your employer offered benefits such as disability, long term care, and additional life insurance. They’re usually cost effective but may not transfer with you if you leave.
- If your health plan offers an HSA (health savings account), this may be very beneficial for you, particularly if you’re in reasonably good health. Your contributions are tax deductible, and if you don’t use the money before you retire, you can withdraw from it like an IRA.
- Don’t wait until you retire to think about getting long-term-care insurance. The longer you wait, the more expensive it may be, and as we age, some health problems start to arrive, and we may no longer be eligible to purchase this coverage.
- Life insurance that was purchased when we were younger may no longer be needed. In many cases, the premiums rise significantly, and those funds may be put to better use for long term care insurance.
- Educate yourself on all of the rules of COBRA. This is the law that allows you to purchase medical insurance from an employer under certain circumstances. These may include a layoff, divorce, death, or a child being over the age of 26.
- Understand the difference between Medicare and Medicaid. One of the main differences is that if your income is at poverty level, Medicaid could pay for your long-term care needs. Know all of your options before there is a medical emergency.
- Out of pocket healthcare cost for a 65-year-old couple is $259,000 to $395,000. This does not include long-term care costs over 100 days, such as assisted living or nursing home care. This also assumes you’re on Medicare. 1
- The Medicare Part B premium is based on your retirement income. Keep in mind that withdrawals from your IRA or 401K increase your taxable income.
- Medicare covers about 60% of retiree healthcare costs. The consumer is still responsible for co-pays, premiums, and deductibles. Also, Medicare doesn’t cover dental, vision, hearing or long-term care costs. 2
- Healthcare has historically increased at a higher inflation rate than most other expenses, so you should plan for that. 3
- A person at age 65 has a 70% chance of needing some type of long-term care during retirement. 4
- If you are still working or covered by a group plan past the age of 65, you can delay paying for Medicare part B, but you will need to maintain continuous coverage to avoid a penalty.
I would love to tell you that there are easy solutions to this challenge, but there aren’t. This doesn’t mean there’s nothing you can do. Here are some steps to take:
If you haven’t already, talk with your financial advisor to:
- Estimate your health care costs
- Develop a retirement income plan to help cover the health care costs
- Evaluate long-term care funding options
- Revisit your plan regularly, and make necessary changes
If you have a financial advisor that does full financial planning, they can help you with all of this. If not, you can do the research on your own. Some useful sites for information would be:
- Official Medicare Site
- Employee Benefit Research Institute
- Affordable Care Act
- Retirement Planning Calculator find one at
As a word of caution, don’t spend your health to make money, and then spend your money to try to buy your health back.
1. Savings Needed for Medigap Premiums, Medicare Part B Premiums, Medicare Part D Premiums and Out-of-Pocket Drug Expenses for Retirement at Age 65 in 2015. Assuming a 90% chance of having enough savings. “Amount of Savings Needed for Health Expenses for People Eligible for Medicare: Unlike the Last Few Years, the News Is Not Good,” by Paul Fronstin, Dallas Salisbury, and Jack VanDerhei, EBRI. October 2015.
2. Employee Benefit Research Institute
3. Bureau of Labor Statistics, June 16, 2016. The annual inflation rate for the United States was 1.0% through May 2016. PwC Health Research Institute, “Behind the Numbers,” 2016.
4. “Medicare & You 2016,” Centers for Medicare & Medicaid Services.
Mary Evans, CERTIFIED FINANCIAL PLANNER™
Evans Wealth Strategies 902 Chestnut Street Emmaus, PA 18049
“Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Evans Wealth Strategies is Independent from Raymond James Financial Services.”
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