Planning for Unexpected Health Care Costs in Retirement
Published On: October 22, 2013
Last Updated: September 2, 2023
How would your portfolio fare if you were faced with a large unexpected health expense during retirement?
In an age of climbing healthcare costs, preparing for that possibility is one of the most crucial aspects of retirement planning. If a serious medical situation arose, would you able to absorb the cost and continue living the same retirement lifestyle or would you be forced to make changes to your budget? The reality is, most people would be forced to make drastic changes.
A study conducted by Sun Life Financial in 2011 found that 92% of American workers either had no idea what their health-care costs would be in retirement or they vastly underestimated the costs. Women, in particular, lack financial preparation, although they are much more likely to need care for a longer period of time.
Fidelity estimates that the average 65-year-old couple retiring in 2013 will need $220,000 to cover medical costs during retirement. That estimate doesn’t include a number of things, though, namely long term care, the cost of which can be devastating to retirement portfolios. Too many people fail to include additional health expenses in their retirement plans and are taken aback when confronted with the out-of-pocket price.
Paying the Bills
Even one year of long term care can cost anywhere from $30,000 to $100,000. Home care is the most affordable option, so if you need medical care in a facility, you can expect to pay a great deal more than if you need custodial care at home.
After saving for years, the last thing that any one wants to do is spend away their retirement savings on health care. Unfortunately, people often refuse to consider the fact that one day they may be frail and in need of assistance, so they instead of preparing for that possibility, they ignore it, and in turn, ignore the financial risk. A substantial portion of people wrongly assume that Medicare will cover all of their health costs, although that is not the case.
The primary payer of long term care services is Medicaid, which is the social insurance program for the poor. If you have assets to your name and a nest egg to protect, your best option is to establish an alternative plan before you retire.
Risk and Options
Knowing how to prepare for these health expenses may be confusing. Because there is no way to know for sure whether you will ever need care or not, long term care insurance is often something people dismiss as an unnecessary cost. Only about 10% of American adults have this type of policy.
When you take a step back and consider the reality of the situation, though, it becomes clear that like any insurance, there is always a chance you won’t use it. When we are talking about our health, though, why would we bother to chance it? We insure everything else, from our houses to our cars to our pets. Insuring our long term health only makes sense. After all, retirement is not the time to stress over finances. Instead, it is a time to relax and reap the rewards of your hard work.
Long term care insurance helps ensure your hard work doesn’t go to waste paying for hundreds of thousands of medical bills. This type of policy safeguards your assets from the risk, which the federal government places at 70% for Americans over the age of 65. Living longer is something we should all enjoy, but preparing for those extra years is crucial to enjoying them. Read more about how to fund your long term care insurance policy or request a personalized quote today.
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