Medical care savings insufficient for seniorsAccording to a new survey by Employee Benefit Research Institute, more and more retirees are concerned they have not saved enough money for medical care during their retirement. Unfortunately, they may be right. Katherine Dean, national director of wealth planning for Wells Fargo Private Bank, says shes seen some retirees pay as much as $5,000 to $15,000 a month for their medical care in retirement, which is much more than most retirees have budgeted.
Steps to save money for medical care?
To save for medical care experts suggest starting with some simple steps. First, medical care expenses should be part of your comprehensive financial plan. This means you need to understand and incorporate the costs of medical care in your financial plan in addition to other factors such as how long you are expected to live, your current health status, whether you will receive any help from employers or the federal government, and the expected rate of inflation.
So, lets look at some examples. For instance, if you are fifty years old with serious health concerns you might spend close to $1,500 per month or $18,000 per year for medical care premiums. Next, calculate what percentage this amount is of your current living expenses and plan to have that expense in retirement. It is not going away, although the costs could be reduced if you receive Medicare.
What is the average cost for medical care? Experts note a 65-year-old couple in retirement should expect to pay $163,000 in out-of-pocket expenses for health care, excluding long-term care. And even then, they have only a 50% chance of covering their actual costs. Add to that the annual rate of inflation for medical expenses of 5% to 7% for health care expenses.
The second step is to be proactive. Because the cost of medical care is expected to continue to rise over the next several years, its important the expense is earmarked in your retirement portfolio. Some retirees may also want to look at getting long-term care insurance. Although it can be expensive, most experts believe there is a 50% chance that someone in retirement will need long-term medical care.
Next, consider a health savings account. Not only are their tax advantages for these accounts, but often the accounts can be transferred if you get a new job. What about after retirement? The good news is you can continue to contribute to these accounts until you reach the age where you are eligible for Medicare. Unfortunately, only 30% of employers currently offer these accounts, and the current limits are low. But if your employer does offer a health savings account you can begin to prepare for health care costs and long-term care right now while you are working and you are healthy.
Behavior can supplement good financial planning
Another positive step you can do to reduce the cost of medical care is to adopt a healthy lifestyle. Preventative care, which includes going to the doctor regularly, can significantly reduce your future medical costs. But you also can take easy steps each day to stay healthy including eating a balanced diet, getting adequate sleep, reducing your stress level, getting adequate exercise and maintaining a healthy weight.