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Offbeat How to shockproof your retirement health care costs

18:08  11 july  2018
18:08  11 july  2018 Source:   reuters.com

4 things you must do before you retire

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With the looming tax filing deadline, many of us have our money on our minds. And for more than 60 million Americans who are enrolled in Medicare, one of

How do you account for health care costs in your retirement planning? If you're like most, you are underestimating these expenses. And, over time, premiums and out-of-pocket costs will go up. People Forget About Health Care Costs . Many retirees and people getting ready to transition out of

Financial planner David Haas' client was traumatized in the dentist chair, but it was not the drill that scared her.

It was the dentist’s bad news: The woman needed thousands of dollars in dental work, and she had never imagined such expenses when she retired a few months earlier. “What if it happens over and over again? Will I run out of money?” she asked Haas, her Franklin Lakes, New Jersey financial planner.

Haas assured her they had added up all her living expenses before she retired at 65, and she would be fine even if she lived to 95.

Other retirees are not as fortunate, however, and they fear a medical shock will drain their savings. In a national survey by Brightwork Partners, four in five baby boomers said they worry but they are too confused to plan for medical costs.

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Health - care costs for retirees have climbed to 5,000 — not including expenses not covered by Medicare, such as dental, basic vision, over-the-counter medicines and long-term care . Here are a few steps you can take to mitigate those costs .

4 Ways to Cover Health Care Costs in Retirement . Medicare isn’t a perfect shield against unexpected health care costs in retirement . Indeed, health -related expenses accounted for three of the top five financial shocks cited in a recent survey of retirees.1.

Tools are on the way. While most retirement healthcare research focuses on broad lifetime numbers, like Fidelity's recent estimate that a couple will spend $280,000 on healthcare costs in retirement, a new study by Mercer Health and Benefits and Vanguard Research broke it down more specifically.

The goal is to develop a model pre-retirees can use to estimate healthcare spending on an annual basis to allow for basic budgeting. That can help set savings goals and also give people time to delay retirement if needed. Then they can be more prepared for that unexpected $1,500 dental crown.

MAKE A BUDGET

The researchers found that the average 65-year-old woman retiring on Medicare in 2018 will start out spending $5,200 in a year to pay for medical expenses -- including Medicare, additional health insurance, and out-of-pocket costs that are not covered by insurance.

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More. Misconceptions About Retirement Health Care Costs . Four out of five workers have not calculated how much they will need for health costs in retirement , according to a 2018 Employee Benefit Understanding the realities of health care costs can make the budgeting process easier.

Our of pocket retirement health care costs are outrageous. While Medicare premiums are fairly predictable, tests and procedures and that aren’t covered, unexpected health crises, and prescription drug costs can throw a wrench in even the most carefully laid retirement plans.

By age 85, the cost jumps to $10,100 per year - or $13,900 for a less healthy person. Older people need more care than people in their 60s, and researchers see healthcare inflation starting at 6.6 percent a year, but trending to 4.5 percent over time.

The researchers came to these numbers by calculating what it costs to be on Medicare, which starts with a monthly fee of $134 a month for Medicare Part B. Then, come extra costs buying Medicare supplemental insurance, or what’s known as Medigap, to pick up doctor and other bills that Medicare does not pay completely. The retiree would also buy drug coverage through Medicare Part D.

Together, all three forms of insurance cost an estimated $3,600 for the year, researchers estimated.

Dental, vision, some drugs and extras like hearing aids are not covered, so that figures into the average $1,600 spent out of pocket.

Cutting out the supplemental insurance cost is often not a cost-saving move. Early retirees with health problems who do that could spend $7,200, according to the Mercer/Vanguard study.

Million-dollar health bills have spiked, and expensive drugs are playing a major role

  Million-dollar health bills have spiked, and expensive drugs are playing a major role The number of patients whose medical care cost at least a million dollars over the course of a year rose by nearly 90% between 2014 and 2017, according to a new report conducted by Sun Life. (Because the report was about Sun Life clients, it focuses on the highest-cost medical bills of individuals with health insurance through their jobs, often at large companies.)Expensive injectable drugs, especially for rare diseases, are one factor that’s fueling the rise, according to the report.In 2016, for example, total treatment costs for a patient with a severe swelling disorder were $6.

Health care costs are one of the biggest expenses during retirement . One of those concerns is how to pay for one of the biggest expenses during your retirement years—out of pocket health care expenses.

Plan now for the cost of health care . Discover the steps you can take today to prepare for your health care costs in retirement —even if that's 10 or 20 years away.

PREPARE FOR SHOCKS

Before retiring, Vanguard Retirement Strategist Maria Bruno suggested people quiz themselves about their health. If they have conditions such as diabetes, arthritis, heart disease or cancer, they are higher risk and spending will likely be more than the $5,200 per year at age 65.

The greatest shocks will occur if people need long-term nursing care at over $90,000 a year, but the researchers found only one in seven will face those costs for two years or more.

People may have a family member who can help with care and hold down the cost, said doctor and financial planner Carolyn McClanahan, of Jacksonville, Florida.

Rather than panicking over possible costs in advance, McClanahan has clients think ahead about lifestyle issues that could affect expenses. For example, as they age they could move close to a family member who could help with care, or they could sell a home and use the proceeds to cover assisted living or a nursing home.

And always have an emergency fund. McClanahan has clients budget $10,000 to $20,000 a year for all unforeseen costs for the home or health.

One way to amass a healthcare emergency fund if a person is still working is to pick health insurance with a high deductible. Such plans often let people put up to $6,900 a year into a Health Savings Account that can be saved until needed for retirement and is not taxed.

A one-year health shock often is not repeated, but expect the unexpected.

“You can’t predict 30 years; not even 10,” McClanahan said. “You will never get the money figured out on the nose.”

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