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Don’t Let Health Costs Wreck Your Retirement Plan

Kimberley Fowler
By Kimberley FowlerAugust 31, 2018
Don't Let Health Costs Wreck Your Retirement Plan

Last Updated: August 31, 2018

After speaking with A Place for Mom’s financial expert, Andy Smith, the message is clear: health care costs can wreck your retirement plan.

Smith, Senior VP of Financial Planning at Financial Engines and host of the call-in radio program, “Investing Sense,” tells us that the problem when planning for retirement is that most people don’t plan for their health care or medical costs. “Health care costs for the average couple over the age of 61 are $241, 000,” Smith says. “People never put these expenses into their long-term retirement planning.”

How Health Care Costs Can Wreck Your Retirement Plan

The problem goes beyond underestimating how much health care will cost in retirement. Illness and other health concerns force many seniors to retire earlier than they had expected — a double whammy for their retirement plans as they have fewer years to save.

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“Many people don’t realize how common a serious illness can be,” says Rocco Taglioni, senior vice-president of distribution and marketing, individual insurance and wealth, at Sun Life Financial. In fact, approximately 70% of people “stop working before they actually plan to — with health problems a predominant cause of sudden forced retirement,” The Globe and Mailreports.

“Major events such as cancer diagnosis, a serious injury or stroke can result in severe financial shock as well as emotional shock,” Taglioni says. In these situations, people “seriously underestimate the cost of out-of-pocket medical expenses — underscoring the need for a more holistic approach to retirement planning,” he warns.

Catherine Seeber, a senior financial adviser with Wescott Financial Advisory Group agrees, telling Market Watchthat people should consider how much it will cost to replace existing employee benefits.

“Benefits are complicated and expensive,” Seeber says. “If they were in a position, some higher level executives wish they could have negotiated severance and retirement packages that provided more lifetime and spousal benefits.”

The lesson here is that the best-laid plans need to have contingency plans. Certified Financial Planners like Andy Smith can help clients with these contingencies and suggest strategies that will protect retirement plans from health problems, illnesses and other unforeseen events.

New Ways to Approach Your Retirement

With a holistic approach to retirement planning, you should consider more than how much you need to save. In addition to your assets, pensions and retirement savings, include the following in your retirement plan:

  1. A legacy plan which can protect savings and ensure smooth transitions should your career be jeopardized due to health problems or other unforeseen circumstances.
  2. Costs of retirement communities, home care and palliative care should you be unable to live independently.
  3. Emergency funds which are easily accessible and liquid.
  4. Estate planning and wills including identifying beneficiaries and preparing Powers of Attorney.
  5. The cost to replace employee benefits, including costs of medical expenses like eyeglasses, hearing aids and mobility aids including canes, walkers and wheelchairs.
  6. Various types of health insurance and life insurance policies including critical illness and long-term care insurance.

It’s important for baby boomers to ensure their retirement plans have taken these considerations into account, but Smith also suggests that baby boomers have early conversations with their own parents.

Get a sense of your parents’ costs. People don’t ask their parents what they are paying. Find out their budget, doctor, insurance details, prescription costs, providers, how much they pay and when they have to pay and what plans they are covered under,” he advises. Although these can be difficult conversations to have, it’s better to collect this information now, when everyone is healthy, rather than during a time of crisis.

A holistic approach to retirement planning includes estate planning, health and life insurance and other contingency planning that will help ensure that your retirement savings and planned standard of living won’t be derailed, should a serious health event occur.

Have you calculated health costs in your retirement plan? Share your stories and the tips that you may have for us, in the comments below.

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Kimberley Fowler
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Kimberley Fowler

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