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Middaugh: Prepare for health-care costs during retirement

Published: Wednesday, April 9, 2014 5:30 a.m. CDT

As you save and invest for retirement, what are your ultimate goals?

Do you plan on traveling the world? Purchasing a vacation home? Pursuing your hobbies? People often think and plan for these costs. Yet, too often, many of us overlook what potentially could be a major expense during our retirement years: health care. By preparing for these costs, you can help yourself enjoy the retirement lifestyle you’ve envisioned.

Many of us may ignore the impact of health-care costs because we just assume Medicare will pay for everything. But that’s not the case. In estimating health-care costs during retirement, you may find that $4,000 to $6,000 per year per person for traditional medical expenses is a good starting point, although the amount varies by individual. Furthermore, this figure does not include the costs of long-term care, which can be considerable. To illustrate: The national average for home health aide services is nearly $45,000 a year, and a private room in a nursing home is nearly $84,000 a year, according to a recent survey by Genworth, a financial security company. 

What can you do to help cope with these costs? Here are a few suggestions:

• Estimate your costs: Try to estimate what your out-of-pocket health-care costs might be, based on your health, your age at retirement, whatever supplemental insurance you may carry and other factors. 

• Know the key dates: Things can change in your life, but try to identify, as closely as possible, the age at which you plan to retire. This will help you spot any coverage gaps before you become eligible for Medicare at age 65. Also, be aware of the seven-month window for enrolling in Medicare, beginning three months before your 65th birthday.

• Review your insurance options: Medicare-approved insurance companies offer some other parts to Medicare, including Part D, which covers prescription drugs; Medigap, which covers gaps in Parts A and B (in-hospital expenses, doctor services, outpatient care and some preventive services); and Part C (also known as Medicare Advantage, which is designed to replace Parts A, B, Medigap and, potentially, part D). You have several options for Part D, Medigap and Medicare Advantage, each with varying coverage and costs, so choose the plans that best fit your needs. (For information about Medicare and supplemental insurance, visit www.medicare.gov.)

• Develop a long-term care strategy: To meet long-term care costs, you could self-insure or purchase insurance coverage. To learn about long-term care insurance solutions, contact your financial adviser.

• Invest for growth and rising income: Health-care costs typically rise as you move further into retirement, so make sure that a reasonable portion of your assets is allocated to investments with the potential for both growth and rising income. 

• Think about health-care directives: If you were to become incapacitated, you might be unable to make health care decisions – and these decisions may affect not only your quality of life but also your financial situation, and that of your family. Talk to your legal adviser about establishing a health care directive, which allows you to name someone to make choices on your behalf. 

Health-care costs during your retirement may be unavoidable. But by anticipating these costs, you can put yourself in a position to deal with them – and that’s a healthy place to be. 

• Steve Middaugh is a financial adviser with Edward Jones Investments. He can be reached at 815-356-5401, steve.middaugh@edwardjones.com or at his office, 500 Coventry Lane, Suite 160, Crystal Lake.

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