When planning is wrong, huge
health care costs can bankrupt a retiree.
Many adults nearing retirement are worried that they have not saved enough for retirement, with added health care costs it can become an issue.
"I've seen people pay as much as $5,000 to $15,000 a month for their medical care in retirement," says Katherine Dean, national director of wealth planning for Wells Fargo Private Bank.
Start with two simple steps, Dean says. "There needs to be a better acknowledgement that paying for health care in retirement is a pretty major issue and something they need to incorporate as part of their (financial) plan. The next step is to do an estimate as to what these costs will be and incorporate it into the plan."
Kimberly Foss, founder of Empyrion Wealth Management in Roseville, Calif., and author of the book Wealthy by Design.†"If you are 55 or 58 and you have significant health issues, you need to figure out what those costs are now and apply them to retirement."
Medicare won't start till a person is 65 years and even then 40% will be out of pocket expenses. She says 4 - 5% return has to be saved for retirement and with health issues at least 5.5 -6%.
"Be proactive, and be prepared," Foss says. "Health care should be specified out and should be earmarked in the portfolio because of the exorbitant amount it costs today."
People need think of long term care, "Do you want to purchase long-term care insurance, or do you want to self insure?" asks Dean. "That can be $50,000 to $100, 00 a year, with most people needing that service for two to five years."
Foss says she doesn't necessarily recommend long-term-care insurance for her clients in their 50s, but if they have it they should keep it. One of her clients was just hit with a 70% increase in premiums. But she does recommend that people think about and plan for long-term care.
"One of the essentials that many consumers should be aware of is health savings accounts," says Natasha Rankin, executive director of Employers Council on Flexible Compensation.
Fragasso says his firm makes sure all his clients have adequate health insurance and guides them to providers if they don't. "We also test their assets to see if one person has to be placed in custodial care, and the other at home, whether their assets will support that. They still might wish to buy that long-term care as estate preservation."
"What they can do beyond financial planning is better healthy behavior," says Jean Setzfand, AARP vice president. "There are so many things you can do in preventative care that can reduce your lifetime costs." Also, she says, AARP is working on an online calculator that will help people with those estimates. That should be available later this year.
Hannah Punitha (IRDA Licence Number: 2710062)
Rodney Brooks, April 2013