Make no mistake, your healthcare in retirement is one of the most important parts of your retirement planning. Now is the time to start gauging how much money you need. The front lines of the baby boomer generation have already crossed the threshold into retirement. You are not far to follow. It’s common to feel hesitant when it comes to retirement decisions. Especially given the uncertain future of and scary statistics surrounding the healthcare system. Too much hesitation can lead to decision paralysis – at that point, you won’t be able to move forward.
MarketWatch reports nearly half of all Americans lack confidence in reaching their post-65 goals. In 2017 American Institute of Certified Public Accountants survey, 71 percent of respondents expressed anxiety over rising healthcare costs. Uncertainty ranked high among the reasons. The threat of increasing health needs and growing healthcare costs evoke worry in the bravest of baby boomers. You are not alone.
The complexity of insurance plans and the healthcare system adds to the pressure.
Additionally, the legislative tug-of-war around the Affordable Care Act (ACA) leaves soon-to-be seniors uneasy so, does this mean you are doomed to wait it out and scrape by? The clear answer is “no.” Retirement remains an exciting life transition when you work proactively to prepare for it.
Step out from among the ranks of the timid and face your retirement with a comprehensive financial plan. One that flexes with upcoming changes and increases your successful entry into the next stage of life. Getting knowledgeable insight from professionals and those going before you keeps the plan based on reality.
Healthcare in Retirement
Read on to understand the healthcare issues you need to plan for; a proactive response which prepares you to be well-cared for in the future and the solutions that support your plan.
The Issues: Facing Your Healthcare in Retirement
Travel brochures and bucket lists serve your retirement plans well. But, not factoring in healthcare leaves you short-sighted. Reality dictates that healthcare needs, costs and worry increase for seniors. To keep these facts from ruining your plans and your mood, you need to understand the potential issues you face.
Increasing Healthcare Needs
While we all know that age is just a number, statistics indicate a rise in age does correlate with an increase in healthcare needs. With the expectation that baby boomers are going to live longer and remain active well into their retirement, the risk of injury and eventual illness increases. Keeping these facts in mind while you look to your future gives you a realistic picture of what to expect.
Combine a large baby boomer generation with increased life expectancies and post-retirement healthcare needs increase dramatically. The World Health Organization (WHO) suggests the growing elderly population is due to a shift in the leading cause of death. Chronic conditions replace infections as the number one threat to senior health.
These conditions plague seniors with heart disease, stroke, and cancer, leading to longer, more extensive treatments. Projections suggest that by 2030, more than 60 percent of baby boomers will manage more than one chronic condition. In the same timeframe, hospital admissions and physician visits are expected to double for this generation.
Incidences of obesity and diabetes rise as well among those over 65. Dementia, known for its impact on seniors, further increases healthcare needs. Longer life spans, active lifestyles, and medications contribute to the increased incidence of falls — the number one cause of injury for retired people.
These healthcare needs often place a higher burden on the healthcare system due to the length and depth of treatments required. System resources and budgets are stretched as healthcare costs grow. These factors add to the complexity of retirement planning.
Growing Healthcare Costs
As the baby boomer generation ages, the percentage of people over age 65 is expected to increase 73 percent by 2029. These numbers threaten to tax the healthcare system in the areas of finance and care delivery. Payment and insurance systems, particularly for long-term care, and accessible community care services will also become challenges.
Growing healthcare costs are impacted by:
- Longer life expectancies for men and women,
- An influx of retiring baby boomers with multiple chronic conditions,
- A rapidly aging population,
- Population growth, and
- Basic inflation.
Recognizing individual responsibility, HealthView Services predicts the average over-65 couple pays nearly $490,000 in healthcare costs during retirement. Complex and pricey insurance systems plus overwrought Medicare programs weigh heavy on this figure.
The stability of the Medicare program comes into question as the individuals paying into it drops six percent by 2029. Meanwhile, the baby boomers needing its funds will flood the system. The expected costs to Medicare and Medicaid will double by the year 2020.
The rise in challenges as baby boomers retire must be addressed by social and public policy. However, the impact hits home with growing healthcare costs expected for average Americans. Ultimately, the responsibility lies with you to secure a financially stable life after age 65.
Multiplying Healthcare Worry
Retirement is the reward at the end of a hard-worked life. However, if you are more worried than joyous, you are not alone. A Merrill Lynch report stated individuals in their 50s experience the lowest levels of well-being — the age you seriously begin thinking about retirement plans.
The instability of healthcare and the potential for chronic illness combined with medical expenses raises concerns for baby boomers. Only 23 percent of this generation believes their savings will get them through retirement. Many think they have not prepared well at all. Are you among these statistics?
Stop dwelling on the dire situation and make a retirement plan. Get help if you need it. More than 90 percent of boomers working with a financial professional have retirement savings. Seventy-five percent of this group put away more than $100,000. Worry abated. Joy returned.
While the situation appears daunting, you can take proactive steps to bring peace of mind to your financial future with regard to healthcare. Developing a comprehensive financial plan and knowing your options today sets you up to enjoy life after age 65.
The Response: Developing A Comprehensive Financial Plan
Fearing what is to come does nothing more than produce anxiety. A comprehensive financial plan creates a picture of life beyond age 65. Healthcare is one of the many facets you need to include. By mapping out your future in this way, you identify the action steps required to get you there. Start by recognizing what changes are necessary, set a plan, and anticipate the unexpected.
Recognize Upcoming Change
Some changes to your health after age 65 are reasonably predictable. Foreseeing shifts in the healthcare system gives you time to adjust. In both cases, recognizing potential, upcoming change helps you formulate a realistic plan.
Personal Health Changes
Genetics, lifestyle and health history give clues to and adjust the timeline of health changes you might experience. Understanding your current health conditions and family history offers insight into what your future years might involve. Also, with age:
- Vision tends to weaken. The AARP reports 60-year-olds require three times the light to read as 20-year-olds.
- Hearing loss increases. Forty-five percent of those reaching their 60s experience hearing loss. The figure rises to 68 percent of 70-somethings.
- Metabolism slows, leading to weight gain. This contributes to diabetes and heart disease — the number one cause of death for those 75 to 84.
Taking action now staves off some of these issues in the future. Choosing a healthy diet and staying active reduces weight gain, increases bone health and more. Recognizing the potential conditions your body may experience helps you determine if you need a lifestyle change, a more significant healthcare budget, or both to support your retirement plan.
Health System Changes
Looking ahead to potential changes in government and insurance systems keeps you in-the-know. Dozens of federal and state agencies manage and regulate the healthcare system. Changes in any one of them impact your post-65 health care costs and coverage. Welcome to the complexity of retirement planning!
Following the legislation and changes in these agencies (or asking someone who does) gives you information on upcoming increases in health care costs. Factoring this insight into your comprehensive plan helps you avoid surprises once you turn in your retirement notice.
Changes at the legislative level directly impact facility operations and resources. For instance, hospital visits are expected to grow significantly as boomers reach Medicare eligibility. Medicare spending is estimated to increase seven percent per year. Facts like these and vast differences in state Medicaid programs affect your costs.
New healthcare laws also impact you directly. If the ACA is replaced by a new healthcare plan, you may see a rise in premiums. The Congressional Budget Office expects seniors could get hit with an additional $13,000. Watching for such legislation allows you to revisit your financial retirement plan and adjust accordingly.
Set Your Financial Plan
A Merrill Lynch study revealed that more than 80 percent of Americans do not know what savings they need for retirement. This figure needs to reduce significantly. Investors recommend squirreling away 10 times what you currently earn by the time you are 67. A CNBC report suggests you need $1.5 million to retire from a $40,000 annual income.
Are you overwhelmed?
Long-term financial planning helps you meet your goals for successful retirement. Develop a comprehensive financial plan now, but do not forget about it. Review and adapt it yearly to ensure you remain in good financial shape, with an eye to retirement. Again, professional advisors become your ally in navigating the complexities of healthcare as you lay out a plan.
Take heart — the picture is not that dismal. But also, take note. A comprehensive retirement plan must factor health care costs into the equation. The AARP Health Care Calculator projects your retirement healthcare costs based on your current health. (Obviously, chronic conditions add up to higher expenses.) Start with this simple tool. Then consider:
- Accounting for Inflation: A five to six percent health care inflation rate sets you up as forward thinking. Keeping an eye on healthcare trends lets you know if this percentage is on point.
- Adjusting Life Expectancy: Increased lifespan means higher costs. While no one knows the length of his or her life, considering the impact of prolonged years on your financial plan proves wise.
- Considering Long-Term Healthcare Needs: The cost of nursing care significantly impacts finances after age 65. Simply assuming you will need long-term care helps you better prepare for the future.
As you draft a comprehensive financial plan, walk through potential scenarios and the possible healthcare issues you may face. Get a realistic look at what could arise in your future and the costs of these events. These tips create an adaptable plan that flexes with the life transitions you will actually face.
Well thought out, versatile financial plans give you peace of mind in an ever-changing, complex healthcare system. While you cannot predict the future, you can plan for it — even the unexpected.
Anticipate the Unexpected
While your retirement plans may include travel or a flexible job you are passionate about, not all dreams go according to plan. Life circumstances alter our ideas. And, unexpected health issues reroute dreams. You cannot plan for all scenarios, but anticipating the unexpected is a vital part of retirement financial planning.
While the expected retirement age holds steady at 65, U.S. News reports the actual median age as 62. With age comes the increased risk of debilitating medical conditions or disabilities and layoffs which lead to early retirement. Unfortunately, this reduces Social Security benefits and impacts savings — a blow to retirement planning.
Thinking ahead increases your chances of surviving this hit. As you go through your “what if” situations, jot down potential income sources and anticipated expenses. Add the additional post-retirement years to the equation. Commit now to either adjust your lifestyle, pursue a more aggressive budget or invest rainy-day savings when the “what ifs” become a reality.
If your head is spinning, it’s understandable. The complexities of planning for retirement send many into a tailspin. Recognizing the healthcare solutions available to you begins to bring clarity. Take a look …
The Solutions: Knowing Your Options
As you develop your comprehensive financial plan, several solutions help you mitigate the expense of healthcare. One or more of these options may appeal to your anticipated health needs and budget. Talking with a professional offers insight and helps identify the solution which best fits you.
Social Security Benefits
Rumors of Social Security instability leave baby boomers wondering if it will support them as they retire. Again, legislation plays a vital role. Changes to the system have already been seen through the work of the House Ways and Means Committee.
While future payouts look plausible, the percentage is likely to be less. Based on the uncertainty, laying out a financial plan that does not include Social Security pads your finances or may allow you to retire early. Consulting a professional also helps you know how early or late to claim Social Security for the maximum benefit.
You might be tempted to believe all will be okay, after all, Medicare kicks in after 65. Unfortunately, Medicare fails to offer a safety net. While you can get Medicare benefits as early as age 62 (in some cases), premiums, deductibles, and copayments are not covered.
Dental services, hearing aids, and prescription glasses come out of your pocket as well. While you may or may not need hearing aids, dental and sight issues become common as you age. Long-term care for disabilities and chronic conditions (all too familiar to seniors) also fall outside of Medicare coverage.
Divided into parts, Medicare offers options. Pay attention to enrollment periods to avoid paying penalties and you need be aware of the plan you are on to understand your coverage. Briefly:
- Medicare Part A: No monthly premium but a high deductible covers hospitals and home rehab
- Medicare Part B: Monthly premium and once yearly deductible takes care of doctors’ services
- Medicare Part C or Medicare Advantage: Lower monthly premiums get Part A and B coverage plus prescription, dental and vision coverage
- Medicare Part D: Monthly premium gives you prescription drug coverage
So, while Medicare does support your healthcare needs into retirement, gaps in coverage leave significant expenses untouched. Medigap offers seniors supplemental coverage. By 2020, these plans will cover 100 percent of out-of-pocket costs for premium payers. To get a plan with greater coverage, you pay a higher premium.
Health Insurance Options
The only commonality to insurance plans is their significant differences. However, the confusion is no reason to avoid looking at your options. And, you have plenty. Employer-based or private plans offer supplemental coverage to Medicare. Gap vs. full coverage plans have lists of pros and cons. Take a glance at the differences…
Short-Term, Gap or Temporary Insurance
This insurance fills in when long-term coverage is not available. If you are between jobs, recently lost your job, missed the open enrollment deadline or are in a waiting period for another health plan.
The Pros: Short-term policies:
- Get you covered quickly
- Allow you to pay for the protection you want
- Accept applications year-round
- Offer lower premiums than long-term options
- Cover basic medical needs and emergencies
The Cons: Short-term policies:
- Cap coverage at 12 months
- Do not cover pre-existing conditions, prescriptions or preventative care
- Are not renewable
- May reject you due to lifestyle or current health
- Fail to meet ACA requirements (leaving you open to tax penalties)
Major Medical or Long-Term Insurance
While long-term insurance policies carry heftier premiums than their short-term counterparts, the coverage is more comprehensive. These policies are less flexible as to policy maximums and deductibles. However, their coverage lasts the length of your retirement years.
The Pros: Long-term policies:
- Have no limited coverage period
- May cover pre-existing conditions
- Cannot reject you according to ACA requirements
- Renew annually
- Meet ACA requirements
The Cons: Long-term policies:
- Charge higher premiums
- Take longer to apply and get approved
- Require underwriting
- Enforce open enrollment periods
- Usually, require a waiting period
Long-Term Care Insurance
Long-term care insurance addresses your potential needs for care at home or within a skilled facility. These policies cover you when chronic illness, disability or other conditions require extended attention. You find these policies as individual plans, employer plans, organization coverage, joint policies and state partnership programs.
The Pros: Long-term care policies:
- Act as a supplement to Medicare and long-term policies
- Offer tax advantages
- Protect against inflation
- Cannot be terminated
The Cons: Long-term care policies:
- Cost you even if you never need this type of care
- Reject pre-existing conditions or enact a waiting period
- Increase their premiums when income tends to decrease
Health Savings Accounts
Growing in popularity, health savings accounts (HSA) allow you to deposit, invest and withdraw funds — all tax-free. The account can be used to pay or reimburse you for qualified medical expenses. After retirement age, the money may be used similarly to a 401(k) plan. Typically, these accounts work in conjunction with high deductible health insurance plans.
A few considerations:
- If you have Medicare, an HSA is not an option.
- Unlike Flex Spending Accounts, unused money rolls over into the next year.
- Fees, initial costs, and limits apply.
Be certain you get a clear understanding of what you agree to when signing up for an HSA.
Stand Out From the Statistics by Taking Action
Even if you do not want to talk about it, or even think about it, the responsibility to ensure a secure retirement rests on you and the news, the statistics, or friends and family may have you thinking the future is dismal for baby boomers requiring healthcare during retirement.
While statistics point to unique challenges facing baby boomers moving into their 70s, they can also offer promise. The same Nielsen report that indicated people in their 50s reported low levels of satisfaction found a quick and steady climb in happiness after that decade. The time is now to ensure your healthcare worries do not extend into the second (and better) half of life.
Know the reality of the healthcare issues you face and may encounter, understand the solutions available to you and draft a comprehensive financial plan. Tailoring the plan to meet your circumstances and retirement hopes will improve its effectiveness. Remember to review and revamp yearly to catch any issues before that magical year 65 comes around.
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Long-Term Care policies have exclusions and/or limitations. The cost and availability of LTC insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of LTC insurance. Guarantees are based on the claims-paying ability of the insurance company. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.