Health & Wellbeing

Protect your retirement income from rising healthcare costs

Posted by Cathy McCabe
If you knew there was something you could do that would enhance your life in retirement, would you take that step?  And, no it’s not the obvious, start early, save more advice.  Instead, I encourage my clients to look at their financial plans with a “get healthy” mindset.
Watching my mom, a professor who retired “early” at age 69, demonstrated this clearly to me. With typical foresight and prudence, she bought long-term care insurance, not wanting to be dependent on her kids.
Her care ended up costing $300,000, over the course of 10 years. Toward the end of her life, she needed to live in an assisted living home (not covered by Medicare), which cost $8,000 per month. Had there been no insurance, this amount would have come out of her estate–it's likely we’d have been forced to sell the family home.
Though we all know from our personal experiences that healthcare expenses run into the hundreds of thousands later in life, I meet so many people who haven’t started saving for retirement, let alone later-life healthcare. Understanding that your health can have a dramatic impact on both your quality of life and your financial freedom in retirement is why call myself a “health-conscious” financial planner.

Starting with a diagnosis

A bit like a doctor, I start by asking: How are you feeling? Diagnosing a combination of current financial status and future plans allows me to prescribe a personalized financial plan. Going beyond the financials, I also make a point of talking through how we can get their plan healthier. I look at this in three ways. One, getting healthier now can improve your quality of life immediately and help more time in retirement. Two, going into retirement healthy will allow you to do more and supports point number three, which is you can avoid some of the healthcare costs that come with aging. While I can’t actually prescribe an eating plan or exercise routine, I can provide guidance on how to factor healthcare costs into a retirement plan.
The good news is that there is a specific savings vehicle targeted at healthcare costs which can help supplement retirement savings. Health Savings Accounts (HSAs) allow monthly contributions for healthcare which contributions are made on a pretax basis. Distributions aren’t taxed either (as long as they go towards medical costs). Therefore, a Health Savings Account can be a very tax-efficient investing tool, if used properly.
For my younger clients who are at the beginning of their careers and may be facing such challenges as student debt, contributing to another savings vehicle can seem daunting. Because HSAs allow immediate withdrawals for healthcare expenses, they can also look at these as an unnecessary expense. One of the most common objections is, “I never get sick.” That logic makes sense if you are looking to the HSA to fund current healthcare expenses. But I recommend they change their perspective and view this as a long-term savings vehicle. The triple tax advantages plus the bonus that many employers make a contribution to the accounts on behalf of the employees makes this a great way to supplement your plans for retirement.

It's while you're healthy that you can let your HSA grow

If you expect good health and aren’t on any medication, HSA contributions can stay in the account and have the potential to grow, like IRA investments, until the day you need them.  Like your 403(b) or 401(k) contributions, it’s a fund you can take with you when you leave your job. And if you’re survived by your spouse, he or she can use your HSA as if it were their own. However, you’re only eligible if you have a high deductible health plan (which in 2018 means, a deductible of at least $1,350 for an individual).
Having this account to supplement your retirement savings accounts can help avoid the pitfalls the might undermine the health of your plan. To help motivate my clients to take this extra step to improve the health of their financial future, I encourage them to remember a few key factors:
  • With the advances in healthcare, and more healthy lifestyles, everyone is living longer.This is especially true for women.
  • My mom’s story demonstrates how expensive healthcare can be in retirement. Medicare is limited in what it covers, and even for services it does cover, you generally have to pay your deductible, coinsurance, and co-payments using whatever retirement income is left to you after-tax.

One final prescription

As a health-conscious financial advisor I certainly focus on providing the guidance on how to save for healthcare costs. As someone who invests in my personal health through exercise and paying attention to how I eat, I am also a strong advocate for taking steps that can potentially reduce your healthcare costs in the future.
Getting healthy now, during your working years, can enhance your lifestyle immediately and create great benefits for your life long-term. Healthier individuals can experience lower healthcare costs which means more to spend on what matters most to you and you’ll be in better shape to pursue your goals. Find a sport or physical activity you love and learn more about how to eat in a healthy, and I promise, still delicious way.
Organic foods, calorie counters, access to gyms and fitness apps, make it easier than ever to jumpstart a healthy lifestyle. While fitting into your bathing suit this spring may not be enough motivation, start looking at your decisions as an investment in living the life you want.
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1 2017 Retirement Health Care Costs Data Report, Healthview Services, 2017
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June 18, 2018