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Retirement Savings and Health Costs

  SIX PRACTICAL SUGGESTIONS  

When steep medical expenses cut into your retirement savings, the results can be staggering and painful.

They were for the mother of Bradford Daniel Creger, chief economist and lead wealth strategist of Total Financial Resource Group in Glendale, California. Mr. Creger's father was a successful stock broker and retired at age 51 due to Parkinson's disease.

If someone had advised Mr. Creger's mother regarding how to solidify her finances during his father's illness, she would have had a very different and better life.

"She should have been encouraged to make some difficult [financial] decisions that would have changed her immediate situation and her tragedy could have been easily avoided," Mr. Creger notes.

Here are six ways you might be able to prevent steep health costs from endangering your retirement and financial future:

1. Consult a financial professional.

If you are facing rising health care costs, and even if you are not yet, have a professional prepare projections about your savings and future retirement income.

James Enriquez, a certified financial planner and financial adviser for Ameriprise in McAllen, Texas, says he has found that many people have not given enough thought about how to prepare for the possibility of an unexpected medical event.

"After a thorough needs analysis is performed, some people find that there is a low likelihood that the unexpected health care event will lessen the amount they pass on to their beneficiaries without impacting their current lifestyles. Others find they will need to adjust their spending in retirement to account for the unexpected expense," he says.

2. Review your health insurance options.

If medical issues are expected to continue, Ernie Bobel, Jr., a certified professional insurance adviser and broker in Scottsdale, Arizona, suggests that if you are employed and anticipate incurring health or prescription drug expenses next year, you may want to switch to a plan requiring smaller out-of-pocket costs. But the premiums will likely be higher.



However, if you are retired and a Medicare beneficiary, you may continue to experience periodic events that may need adjustments in your health care planning structure and required changes according to the rules and laws of Medicare. 

For example: relocating to a new service area or Rx plan changes affecting costs or availability.

A review of Part C or Part D plans is highly recommended during the annual election period of premiums, copays, deductibles, and coinsurance.

Not to mention, in-network and out-of-network doctors and prescription formulary pricing.

3. Give serious thought about a long-term care policy.

Even an affordable alternative with manageable premiums instead, especially if you are in good health now before a medical issue arises.

This type of insurance could protect you against the enormous costs for health care at home, in a assisted living facility or nursing home.

" If you are not protected with a long-term care policy before you become ill, the premium cost to acquire one later (when insurers will percieve you as a higher risk in order to pay claims) is often prohibitively expensive," says Matt Carey, co-founder and CEO of the financial services firm Blueprint Income. "Younger and healthier is key when a person is when purchasing a policy."

But, he adds, underpricing has led many long-term insurance companies to exit the business and/or forced to raise rates.

4. Consider buying a lifetime income annuity. 

“Annuities are a great way to provide steady, lifelong income for things like housing, food and transportation. In general, however, because health care costs are quite variable, you will want to keep money accessible for health care ‘shocks’ that might come with an illness or procedure that involves a sizable out-of-pocket expense,” Mr. Carey advises. 

The potential for medical costs to spike is a good reason to consider buying one of these with a portion of your retirement funds — not all your retirement money.

Mr. Carey says retirees should keep about 70% of their savings accessible.

With a lifetime income annuity, you give the insurance company a lump sum and are then guaranteed predetermined payments for the rest of your life.

5. Downsize your home. 

Mr. Enriquez says it may make sense for a retired couple with no family nearby to downsize, reducing their monthly housing expenses and possibly freeing up some cash from the sale of their home.

6. Tap a cash-value life insurance policy.  

If you have one, "utilizing possible cash value from a life insurance policy, which may have never been intended to have been used during the policyholder’s life, could help address a health care concern,” says Mr. Enriquez.