Careful planning needed to meet retirement health care needs

February 22, 2012 

Health care is expensive. With the efforts to balance government budgets, the trend of shifting more costs to the consumer is likely to continue. Whether we are retired or planning for retirement, the numbers can be daunting.

Fidelity estimates that a couple retiring in 2011 at 65 will need to have $230,000 saved to cover them for 17 to 20 years. Other sources, such as EBRI and HealthView Services, have estimated up to $369,000 for the average 65-year-old male. The wide range of estimates is due to different assumptions and costs included. All of the estimates are a sizeable portion of most people’s retirement nest egg. These numbers do not even include the cost of long term care.

Why are these numbers so high? First, the cost of insurance is approximately 50 percent of the total. In 2012, Medicare Part B is $99.90 per month for most retirees $1,198 annually. The national average for Part D plans is $53.99 per month $647.88 annually. The average supplemental policy (Type F in 2010) was $1,479 annually. On average, insurance alone was $3,325 in 2010. When you add deductibles, co-pays, glasses, dental care and over the counter drugs, the out-of-pocket costs can easily exceed $5,000 a year. It is worse if you have health issues.

Second, the inflation rate for medical services and drugs has been rising at about twice the consumer price index. Using an inflation

rate of less than 5 percent for health care is not being realistic. Finally, we tend to need more care as we get older. To get a better estimate for your situation you might try the calculators at Fidelity (powertools.fidelity.com/healthcost/intro.do) or HealthView Services (Basic report is free, the full report is $14.95. http://apps.hvsfinancial.com/hvadvisor/).

Once you know what some of the potential costs might be, you can start to consider how to cover these expenses. There are things you can do to lower the costs, reduce the care needed and stretch your dollars:

If you are still saving and planning, establish a line item to cover health care.

This is similar to planning for housing, food and clothing expenses. If you do not have access to a company-sponsored plan and are in good health, look at a high deductible insurance plan you can couple with a Health Savings Account. Contribute to your HSA just as you would an IRA. They grow tax free and you can use them later for health care and not pay taxes on the withdrawals.

As you approach 65, make sure to register for Medicare coverage, even if you continue to work. If you delay, you will pay a higher rate as a penalty for the rest of your life. At the same time, see how your company plan, if you have one, interacts with Medicare.

Review your Medicare D coverage annually to see if a different company can provide lower cost coverage. The first step is to get your prescription information together and use the tool at Medicare.gov (medicare.gov/find-a-plan/questions/home.aspx) to find plans that match your needs.

If you are having difficulty paying, there is information on how to get help from the state. Look at Medicare supplemental insurance to cover what Medicare doesn’t. Fortunately, one of the most expensive out-of-pocket items, the prescription “donut hole” is being closed by 2020.

Keeping up with the rapid changes in medicine, and our own health, can be difficult. Getting the information you need from a number of medical providers can be a challenge. Hiring an experienced personal advocate to work with you and your doctor to assure you are getting the most effective and lowest cost care can be well worth the expense.

Consider setting up a separate fund to pay for health care costs in the future. Often costs start to increase rapidly at age 80 to 85. Buying a deferred annuity that does not start to pay you until you reach 80 could be an inexpensive way to assure there will be money to pay the bills.

The numbers involved with health care can be scary and we may not be able to prepare for all the possibilities. However, taking steps to plan, save and find ways to reduce the potential costs can go a long way towards making your retirement more enjoyable.

Tom Roberts, owner of A Nw Approach Financial Planning in Lakewood Ranch and Sarasota, can be reached at 941- 927-9590 or Tom@ANewApproachFP.com.

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