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Don’t Let Healthcare Costs Ruin Your Retirement

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Even with Medicare, it’s likely to be your largest monthly expense.

By Grace S. Yung, CFP

In spite of all the recent debate about our national healthcare policy, one thing is certain: regardless of whether Trumpcare or Obama-care (or something else) prevails, healthcare costs are significant, and if they aren’t properly anticipated, they can derail the most well-planned retirement.

Americans are fairly intelligent consumers, but we often don’t consider the possibility of needing healthcare in the future, or how much that could cost. Some of us may require long, drawn-out care throughout our golden years, while others will remain healthy and active until the end.

This isn’t an area where you want to roll the dice and hope for the best. Setting up a plan that covers a less-than-ideal scenario requires some research, but it can be well worth the time you spend doing it yourself—or better yet, by working with an advisor. In no case, though, is it safe to make blind assumptions.

For instance, many people wrongly believe that Medicare will pick up most or all of their healthcare costs in retirement. In fact, Medicare Part A and Part B—also referred to as Original Medicare—will cover certain hospitalization expenses and other costs, but it can be fraught with substantial out-of-pocket expenses such as deductibles, co-payments, and coinsurance.

As an example, in 2017, Medicare Part A—which covers inpatient hospitalization—requires a deductible of $1,316 for each benefit period. But that’s not where the out-of-pocket expenses stop, particularly if you require a hospital stay of longer than 61 days. In that case, you would be required to pay a coinsurance amount of $329 per day for days 61 through 90. And if you’ve used up your “lifetime reserve days,” you’ll face a daily coinsurance charge of $658 per day after that.

Due to Medicare’s out-of-pocket expenses, and the various scenarios that aren’t covered at all, a 2016 Fidelity survey estimated that the average retired couple aged 65 would need approximately $260,000.

The good news is that there are several strategies for controlling excessive healthcare costs. For example, it’s essential to set aside additional funds (over and above what you’re saving for retirement) for out-of-pocket expenses. Meeting with a financial professional can provide you with a clearer picture of how much you should be saving based on your current age and your time frame until retirement.

You may also want to consider the purchase of long-term care (LTC) insurance. Most of these policies cover the cost of care that is received either in a nursing home or in your own home. Unlike Medicare’s limited nursing-care coverage following a hospital stay, LTC plans don’t require a previous hospital stay or limit you to only the most medically necessary type of care. In addition, several insurance carriers offer a spousal or partner premium discount for same-sex couples, provided that the couple applies for the policy at the same time.

If you’re currently covered by Medicare Part A and Part B (or if you soon will be), you should also consider a Medicare Supplement insurance plan, often referred to as “Medigap.” This type of insurance can help fill the gaps left by Medicare when it comes to coinsurance, co-payments, and deductibles.

Finally, regardless of how long you have before retirement, ensuring that you eat right and exercise regularly can go a long way toward helping you remain healthy for the long term. Starting now with wellness and other disease-prevention activities can help you save on health-related expenses down the road.

Many studies have shown that healthcare represents the largest monthly expense for retired individuals and couples. Failing to plan for these expenses can affect not only the quality of care you’ll receive, but also your overall lifestyle.

Because laws and regulations change, it’s helpful to work with a financial professional to prepare for future healthcare expenses. Look for one who is both knowledgeable about protecting assets and familiar with appropriate strategies for the LGBTQ community.

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the 2014 September issue of Texas Monthly. Yung can be reached at [email protected].

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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