Making a level-headed assessment of potential risks is important to every phase of your retirement planning. Your health can be one of the most emotionally difficult subjects to consider in this light. But it can also be one of the most financially challenging – and potentially damaging – if you haven't weighed all your options and made some key decisions.
Even seniors who are in good health need to look ahead and start thinking about these three key areas where their health care and financial plans intersect.
1. Review your Medicare coverage.
Many seniors head into retirement with unrealistic expectations about their health care coverage. For one, Medicare is not free. You won't pay a premium for Part A, which covers inpatient hospital treatment. Based on your income, you will pay premiums for Part B (doctor's visits) and Part D (prescription drug coverage). And you'll also be paying out of pocket if you want a Part C Medicare Advantage plan from a private insurer.
Another common misconception is that Medicare covers everything. Unfortunately, Medicare A and B won’t pay for things like eye exams, dental care, or hearing aids.
And, crucially for folks with ongoing health problems, Medicare doesn't cover long-term care or in-home nursing.
That's why it's so important to sit down with a health care professional every year during the annual Medicare Open Enrollment period from October 15 to December 7. As your health care needs change throughout retirement, you need to make sure that your Medicare coverage is keeping pace and staying within your budget.
2. Explore supplementary options.
Medicare Supplement Insurance (Medigap) can help cover some of the things that standard Medicare doesn't, such as copayments, coinsurance, deductibles, and health care costs incurred while travelling abroad. Some seniors also choose to create a dedicated health care savings bucket to pay for extra medical expenses.
Neither of these options are ideal for long-term care, which, according to LTCG, exceeds $50,000 per year and balloons past $100,000 annually in nursing homes. And depending on your age and medical condition, it can be difficult to purchase long-term care insurance when you need it the most.
The U.S. Department of Health and Human Services estimates that a 65-year-old has a 70% chance of needing long-term care at some point. The earlier you start planning for that likelihood, the more options you have.
If, while you're working, you have a qualified high-deductible insurance plan, you can open a tax-advantaged Health Savings Account (HSA) and withdraw from that to pay for long-term care. Some life insurance policies allow you to add an accelerated benefits rider to your existing policy to cover long-term care costs. And while you're younger and healthier, you might be able to lock in a long-term care insurance policy at a much more affordable rate.
3. Prepare your heirs.
You're under no obligation to share every detail of your estate plan or your health with your loved ones. But if a debilitating illness or your last wishes come as a surprise to your heirs, the shock will make a difficult family situation even harder, and maybe even more contentious.
Opening this line of dialogue can be challenging. It can also be incredibly rewarding and give you real peace of mind. We’ve helped many of our clients facilitate conversations that quickly move beyond health and money into the values that folks want to pass down to the next generation. We can also help your heirs start to think about how an eventual inheritance is going to work and how they can best incorporate your legacy into their own financial planning.
Of all the things your financial plan is meant to provide, your safety and security are at the top of the list. Let’s talk soon about your health in retirement and start planning for the care you’ll need.