Plan to afford health care in retirement

by Center for Personal Finance editors

DULLES, Va. (5/22/12)--The cat's out of the bag: Americans can't afford to retire. In fact, only half of us are saving anything at all for retirement. At the same time, our healthcare costs in retirement have increased an average of 6% a year in the past decade (Huffington Post May 10).

People in two demographic segments are least likely to be putting money aside: the young and the poor. In 2011, only 44% of young adults ages 18 to 34 saved any amount of money for retirement, and only 23% of Americans earning less than $50,000 a year saved at least $2,500 in their retirement accounts.

In a recent study, Fidelity Investments estimates that over an average retirement lifetime of 20 years, a 65-year-old couple can expect to pay $240,000 for medical costs not covered by Medicare. This estimated amount includes Medicare premiums, out-of-pocket costs for prescription drugs, Medicare supplemental insurance, and expenses like co-pays, co-insurance, and deductibles.

You don't need to have the individual's portion of that $240,000 in your 401(k) the day you retire. The estimated costs are spread over your remaining lifetime. But you won't be able to pay for your medical expenses without a plan.

Take these steps to make sure you can pay for your health care costs in retirement:

• If you are employed: Start investing now or increase your investments into retirement accounts. If your employer offers a match, contribute enough to obtain it and speak with your investment adviser about how best to distribute additional funds.

• If you are not employed: If you are able to take care of your necessities, speak to an independent financial adviser about starting a retirement account. A small investment on a regular schedule will make a big difference.

• Be as healthy as possible. Invest time in your health. Check reputable websites like the Mayo Clinic's and ask your physician for help improving your lifestyle.

• Stay in the workforce longer. In addition to earning more money, you might become eligible for medical coverage as an active employee, and your increased social engagement could improve your health.

• If you're eligible, consider opening a health savings account (HSA). Find out if your employer offers a high-deductible health plan, or look into buying one on your own. A high-deductible plan with a health savings account could save you a lot of money if you're single and rarely go to the doctor.

For more information, listen to the audio segment "Health Care Survival Guide" from the Home & Family Finance Resource Center.


Printed Wednesday, May 22, 2013

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