The Cost of Aging and Planning for Increased Healthcare Expenses

Aging is inevitable, but with it comes retirement, which should be a wonderful time of life. However, people are saving less for retirement than ever before, causing concerns that many will have to work longer, or find themselves struggling financially during their golden years. This lack of savings is caused in part by a lack of planning.

One major issue is that, when planning for retirement, many people fail to recognize one of the main expenses they will face – increased health care expenses. As people age, health care expenses naturally increase. In fact, according to a study by Fidelity Investments, the average person can expect to spend $157,500 on health care expenses throughout their retirement years.

Fortunately, you have several options that can help you to avoid a financial shortfall when you retire.

Create a Retirement Budget

To know how much you need to save, you first need to have a grasp on how much you’ll be spending on a monthly basis. You’ll be able to anticipate many of your expenses because you’re paying them now. These expenses include things like your mortgage or rent payment, auto insurance, cell phone costs, and groceries.

Health care expenses are a different story. You’ll have to do some research to find out what your Medicare premiums will be when you become eligible, as well as what Medicare will cover and not cover. You can find all the information you need on the Medicare website.

With this information, you can then estimate how much you’ll spend monthly on premiums, prescriptions, and other care.

Increase Your Retirement Savings and Income

To ensure that your retirement savings will be enough to cover your monthly expenses as well as large health care expenses that may come, you should maximize the amount that you invest monthly.

One way to do this is by maximizing your 401K or other retirement investment options that your employer offers. You can also invest in traditional or Roth IRAs, which can be an income source when you retire.

You can also invest in other vehicles that can provide income, such as income annuities or bond funds.

It’s advisable to sit down with an investment professional to build a portfolio of investments that will help you to meet your retirement goals.

Open an HSA Account

A Health Savings Account is an investment vehicle that allows you to invest pre-tax income which you can later use to pay for qualified medical expenses. You must be enrolled in an HSA qualified health plan, which may be offered by your employer, or you can enroll on your own.

The investments into the HSA are tax deductible (subject to IRS limits), and the money and earnings in the account are not taxed. Additionally, if you take out funds for qualified medical expenses, the money is still not taxed.

You must be qualified to invest in an HSA.  To qualify, per the IRS, you must:

• Be covered by a high-deductible health plan on the first day of the month
• Not be covered by other health insurance
• Not be enrolled in Medicare
• Not be eligible to be claimed as a dependent on someone else’s tax return

You can learn more about HSAs on the IRS website.

Purchase Long Term Care Insurance

Long Term Care Insurance covers nursing home costs, assisted living costs, and home health care costs, in part of in full. These benefits kick in when you turn 65, or if you have a medical condition that qualifies you to receive these services.

Considering the cost of these types of long-term care, a long term care policy can be well worth the cost.

Keep in mind that the premiums are lower the younger you are when you purchase the policy, but purchasing it too early means that you’re paying for coverage that you don’t need yet. Also, be sure to shop around for your policy and read the fine print so that you know exactly what and how much it covers.

Sell Your Universal Life Insurance Policy

Universal Life Insurance is permanent life insurance that has a cash value and a death benefit. It offers flexibility in that you can usually adjust your premium and death benefit during the life of the policy.

In terms of health care expenses that you may incur, you can tap into the cash value of the policy to pay for medical costs. But you have another option that can provide you with even more cash – a life settlement.

A life settlement means selling your universal life insurance policy to a third party for market value. The market value is generally more than the cash value, but less than the death benefit. The third party or the end policy holder then collects the death benefit when you pass.

You can potentially take advantage of a life settlement with any type of life insurance policy, but Universal Life Insurance is likely to get you the best purchase price.

In any case, it’s a way to generate a lump sum of cash for your health care costs, such as a  large, unexpected medical expense.

Health care expenses can be significant as you get older, so planning and taking steps to handle those expenses is crucial. It’s a good idea to discuss options with a financial professional. Our professionals are ready to help, so contact us today for a free estimate!