Predicting your health over years, even decades, in retirement is difficult. As I explained in an earlier post on the Studio, the state of our health is a “known unknown.” We may get sick or experience a physical or intellectual disability, or we may not. A car accident or slip in the shower might injure us, or not. The only thing we know for sure is, most of us won’t be getting healthier as our bodies and minds age. The human body is built to last, especially with proper maintenance and care, but it can’t last forever, at least not so far.

As a result, we will likely need more health care in retirement than now. Health care is costly, and it’s not a luxury item. That’s why you should use the opportunity presented by National Retirement Planning Week, April 8 through 12, 2019, to plan for your health care as part of your retirement plan.

Here are six tips for getting started:

Tip #1: Don’t Let Large Cost Estimates Deter You

One recent study estimated that a couple with median prescription drug expenses will need $296,000 in savings to have a 90% chance of paying for their health care costs in retirement.1 That’s an eyepopping number, but keep it in perspective. Most Americans won’t make lump sum health-related payments immediately after they retire. We will pay for health care and health insurance over many years in retirement just like we have during our working lives. Also, in most cases, we can expect to pay less for health care in our younger, healthier retirement years and more later. So, thoughtful planning can make a difference.

There is a complication: this generation will be retired longer than our parents’ and grandparents’ generations. In 2017, Americans who reached age 65 could expect, on average, to live another 19.5 years. For women, it was 20.6 years.2 Longer retirements mean more years of health insurance premiums and, for some, a higher likelihood of living with a disability or health condition. A large majority of Americans with disabilities is over age 65.3 Again, plan for the increasing probability of joining that group.

 

Tip #2: Give Your Mind and Body Proper Maintenance and Care

Some health conditions are caused by factors beyond our control. But behavioral choices contribute to others, including some forms of diabetes, lung cancer, heart disease, Alzheimer’s disease, and more. You can live healthier, and have a good chance of saving or delaying some health care costs.

Does this mean eating kale at every meal? No (I don’t like it either). Start by seeing your doctor for a physical. Have a blunt talk about your lifestyle. Get the care you need without delay. Quit smoking, eat healthfully and moderately, exercise regularly, reduce stress, drink alcohol in moderation, and keep your mind healthy by continually learning new things and socializing with family and friends. Your choices may reduce your health risks, and it can help you live a happier life.

Tip #3: Enroll in Medicare

Medicare provides health insurance to Americans aged 65 and older, among others. The insurance is good, but not perfect, simple, or entirely free. Nonetheless, it’s probably the best health insurance deal you can get. Enroll as soon as you turn 65, at least in Part A.

Part A covers hospital visits and, in most cases, is premium-free. Part B covers doctor services and outpatient care. These premiums rise with inflation. Part C allows private “Medicare Advantage” plans to cover the same services as Parts A and B, and possibly some additional benefits (e.g., vision, hearing, dental). But Part C plans can require additional out-of-pocket expenses above and beyond what Medicare covers. Part D pays for prescription drugs (sometimes included in Part C plans). Part D and supplemental insurance plans charge premiums set by insurance carriers that can vary by plan and location. These plans are likely to be your biggest health insurance cost items in retirement. Research before choosing a plan.

"We know we may get sick or experience a disability as we grow older, even if we can’t know or control when or how it will happen. Yet, we can exercise some control over the kind of life we will lead and the health care we will receive as our bodies and mind age."

Tip #4: Insure for Long-Term Care Needs

Medicare does not provide long-term care insurance that pays for in-home nursing and home health aides or residential care in an assisted living or memory care facility. Medicaid may pay for these services, but only for those with very limited resources. Be forewarned: long-term care can cost thousands of dollars per month. Yet, the only alternative may be to rely on family members to provide care, which can cost them lost time and wages. It also can put immense burdens on spouses, partners, adult children, or others who are not trained care providers.

Long-term care can be especially challenging for women. Women live longer, on average, and may not have a spouse or partner to rely on.4 Women also may have less retirement income if caregiving for children, parents, spouses, or partners took them out of the labor market for some time, or if they experienced workplace discrimination.5 These factors can reduce wages and salaries, which can mean less retirement savings, and reduced Social Security benefits.

Long-term care insurance can help, but it can be expensive, and not every policy provides coverage for the duration of an insured’s life.6 Annuities* offer another solution. Generally, annuities provide protected lifetime income†: regular and reliable payments in retirement that can last for the rest of your life.‡ Most annuities do not require proof that you need long-term care, but some specialized annuities can defer your income until you need it to pay for long-term care.7 Research all the options and comparison shop.

Tip #5: Plan Where to Live When Health Issues Arise

Where to live in retirement is a big question for your retirement. Do you want to downsize from a house to an apartment?  Move to a warmer (or colder) climate? Be closer to (or farther away from) family members? Have ready access to a golf course or major city?

Your location choice should not be about lifestyle alone. As you age, you are more likely to need help with ordinary daily activities and, possibly, long-term care. For these reasons, some retirees choose to live near their children, other family members, or close friends. They want a ready safety net. If you don’t want to or cannot rely on family, research the social services provided by government and non-profit organizations in your area to determine whether they will provide a sufficient safety net.

Equally important, assess whether you will be able to navigate your living space (e.g., house, apartment) if your mobility, senses, or cognition become limited. For example, would your apartment accommodate a wheelchair, if needed? Does entering your house involve touch pads and codes for keyless locks or alarm systems? Will you be able to see and understand them later in life? Your living space should be comfortable, safe, and easy-to-navigate today, but also years from now when your physical and mental state may have declined.

Tip #6: Ensure You Will Get Only the Health Care You Want

No one likes to think about illness or death. But planning for the possibility that you will not always be able to make your own health care decisions can ensure you will get the care you want, including at the end of your life. There are tools that can help you.

A living will, or advance directive, is not like a will and testament. Rather, it declares (in writing only) what end-of-life medical care you want if you are unable to communicate your decisions. States have different rules, and this is a legal document, so talk to a lawyer or research ready-to-use forms specific to your state.

A medical power of attorney, or health care proxy, names an agent (again, in writing) to speak for you on health care matters if you cannot speak for yourself. You can have separate powers of attorney for different matters (e.g., one for health care and another for finance), or you can appoint one agent to make decisions about all matters. This is another legal document, so seek out a competent attorney for legal advice based on your unique situation.

Conclusion

In an earlier post, I posited that “many of us harbor a secret fantasy of living forever.” But it is a fantasy. We know we won’t. We know we may get sick or experience a disability as we grow older, even if we can’t know or control when or how it will happen. Yet, we can exercise some control over the kind of life we will lead and the health care we will receive as our bodies and mind age. It’s time to build the health-care portion of your retirement plan.

 

1 “Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $400,000, Up From $370,000 in 2017,” Employee Benefits Research Institute, Issue Brief No. 460, October, 2018.

2  "U.S. Centers for Disease Control, Mortality in the United States, 2017," NCHS Data Brief No. 328, November, 2018.

3 “Table 1. Employment status of the civilian noninstitutional population by disability status and selected characteristics, 2018 annual averages,” U.S. Bureau of Labor Statistics.

4 “Women and Financial Wellness: Beyond the Bottom Line,” Merrill Lynch and Ad Age, 2018.

5 “Women and Financial Wellness: Beyond the Bottom Line,” Merrill Lynch and Ad Age, 2018.

6 “Disrupting the Marketplace: The State of Private Long -Term Care Insurance, 2018 Update,” AARP Public Policy Institute, August, 2018.

7 “Annuities,” Administration on Aging, U.S. Department of Health and Human Services, October, 2017.

____

*What is an annuity?

Annuities are long-term, tax-deferred investments designed for retirement. Variable annuities involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½. 

Annuities are not for everyone. And, it’s important to remember that these products are meant to be long-term investments designed for retirement, so there are restrictions in place to discourage you from withdrawing all of your money at once or taking withdrawals before age 59½. However, most annuities do allow for exceptions based on specific circumstances such as a terminal illness or other emergencies.

† Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.  Guarantees are backed by the claims paying ability of the issuing insurance company. 

‡ Guarantees are backed by the claims paying ability of the issuing insurance company. 

The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.

   

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