Health care is a top concern for people approaching or in retirement. Older Americans are caught in a trifecta that affects their retirement health care and its costs:
- People usually require more health care as they age.
- Health care costs for all Americans are rising sharply.
- The average lifespan is higher than it once was, so it’s important for retirees to plan for more years of health care expenses than they once had to.
Costs Are a Key Concern
It’s essential to plan for health care costs as you age. Americans spend roughly $5,956 annually on health care costs between the ages of 65 and 74, according to the U.S. Bureau of Labor Statistics.
While Americans generally become eligible to be covered by Medicare at the age of 65, Medicare coverage requires payment of premiums, deductibles and copays. It is not free. The premium, for instance, is rising from $135.50 per month in 2019 to $144.60 per month in 2020.
Many Americans find it advantageous to enroll in coverage complementary to Medicare, such as Medigap plans or Medicare Advantage plans. These can offer broader coverage and pay part of the costs of Medicare as well. You might be covered under other insurance, such as a former employer’s coverage, in retirement as well.
It’s very important to realize that these costs are not likely to be static. Health care costs in the past several decades have climbed sharply, and unfortunately, that’s a trend likely to continue for the foreseeable future. Between 2000 and 2018, for example, the costs of Medicare coverage increased 195 percent. Prescription drug out-of-pocket costs increased 188 percent. The costs of a Medigap plan increased 158 percent. While many categories of spending increased across the board, health care costs lead the pack.
The solution? Plan for the insurance you will likely have and need as well as for any additional expenses, such as prescription drug coverage. Factor in steep cost hikes in these costs during your retirement. A financial advisor can help you plan to have enough income to cover health care costs.
Another common concern about health care is long-term care. Medicare, and many other insurers, do not cover nursing home or end-of-life care should you need them.
To manage this potential risk, your financial advisor should thoroughly review your options about long-term care.
Start 2020 off on the right foot. Contact Align Wealth Partners and put a financial plan in place now.
The Longevity Factor
Currently, the expected lifespan of Americans turning 65 years old is 84 (men) and 86-½ (women). But for people born in 1930, the average life expectancy was just 58 (men) and 62 (women). In other words, average life expectancy increased by more than two decades during the 20th century.
Your individual longevity depends on your health and circumstances, of course. But the overall message is clear: It’s prudent to plan for a long life. Roughly one-third of today’s senior citizens will live past the age of 90, and about 14 percent are expected to live past the age of 95.
The financial message here is also clear: Your financial plan should include health care costs for a longer period of time. Working with a financial advisor can help ensure that you have income to cover these costs. As a rule of thumb, people need roughly 80 percent of their pre-retirement income in retirement, including health care costs.
Determining When You Will Retire
Your health should be a consideration when you are determining when to retire. People become eligible to draw Social Security benefits at the age of 62, assuming they have enough work credits to be eligible for Social Security. But these benefits are as much as 30 percent lower than they would be if you retired at full retirement age. The variable amounts are based on a complex formula set by the Social Security Administration.
An individual’s full retirement age is determined by birth year; it’s currently 67 for people born in 1960 and later. Conversely, people who continue working beyond this age can receive about 8 percent more annually in Social Security benefits each year, up to the age of 70. After 70, Social Security benefits do not increase.
If you have health conditions or concerns at the age of 62, it may be beneficial to take Social Security at that point. If you expect to have a long life, on the other hand, it may be a better plan to wait to take Social Security benefits, so you receive more each month.
Social Security benefits, of course, will likely not be your only income when you retire, and incorporating all of your income streams can be difficult and complex. Discussing your plans for when you’ll retire with a financial advisor can save you time, money and lost sleep.
Your Estate Plan
A comprehensive financial plan should include advanced estate planning, which includes both your will and directives concerning your health care and assets.
A power of attorney, for instance, can give a trusted individual authority to pay your bills and manage your assets should you become ill or otherwise incapacitated. A medical power of attorney can provide authority to manage your care if you become unable to do so. Both powers of attorney can be either nondurable (and end when you become able to manage your affairs again) or durable (and last through the end of your life).
Family protection and estate planning can be some of the most important parts of your financial plan. Insurance is an important risk management tool that can shield you and your family from financial hardship caused by unplanned or even tragic events.
Working with a financial advisor can help you identify your risks and financial needs, and then implement a cost-effective risk management program that has been developed to meet your specific circumstances and requirements. The right advisor can also help you determine what type of insurance you need, such as life insurance, disability insurance and long-term-care insurance.
Remember, retirement planning LA is different than in other areas. Contact us to see how we can help.