Retirement Planning Forgottens: LTC and other Health Care Costs

Retirement Planning Forgottens: LTC and other Health Care Costs

August 22, 2023

When planning for someone’s retirement there are a myriad of factors that come into play. With Americans living longer on average, a person’s retirement can easily span 30 years which can be nerve-racking to think about. How will my money ever last that long? Am I going to run out before I die? Monthly expenses, retirement goals, and unexpected life events can quickly eat up savings if there isn’t a financial plan in place already. In the financial planning process, it is extremely important to have a variety of inputs regarding your situation. Planned income for retirement, specific goals that you want to achieve with your money, current investment account values and the savings you are allocating to those account, and estimated Social Security income are just a small few of the numbers we need to accurately plan for retirement. One of the factors that people often forget or overlook is the prospect of needing some sort of Long-Term Care at the end of your life.

When we talk about Long-Term Care we are talking about the need to either move into an assisted living facility or have some sort of in-home nursing provided for you. The discussion surrounding the decision to move mom and/or dad into some sort of a community is a difficult one for many families. This conversation is made easier if you have allocated savings or insurance to cover for this need. Long-Term-Care Insurance, or LTC, can provide for some peace of mind. LTC covers care, in a facility or at home, that is required when an insured person is unable to perform 2 or more of the 6 “Activities of Daily Living” or “ADL’s” for short. The 6 ADL’s include bathing, dressing, eating, transferring, toileting, and continence. One of the largest expenses to plan for in retirement comes at the end of the plan and that is Long-term Care expenses. The question then is when is the best time to purchase coverage? Rates are lowest at younger ages but the need for coverage is often not until much later in life. In rare instances, Long Term Care coverage is offered through an employer as group coverage. In these situations, the premiums are usually lower and the coverage is often “portable” meaning that it can be kept even after the employee leaves the company. Conventional insurance policies provide a monthly or lifetime benefit, subject to a waiting period, with premiums that may increase over time. “Asset Based” plans create a lifetime benefit in exchange for a large one-time payment. The premium payment creates a “Pooled Benefit” that may be used for one person or jointly by both spouses. Insurance companies have found it difficult to continue to offer this type of coverage in light of the skyrocketing cost of care and the increasing longevity of our population. Even so, there are still creative ways to address this need by working with an experienced adviser.

Another oft forgotten retirement expense is the uptick is healthcare. Many people have health insurance offered through their employer, but when someone retires that goes away. You are left to try and find coverage elsewhere at an age where you may have more health problems than when you were younger. Many people plan on utilizing Medicare for their health insurance coverage. Medicare, however, does not kick in until you are 65. So, if you retire at age 60, you won’t be eligible for Medicare for another 5 years. While Medicare premiums are often affordable, there are health expenses that will come out of pocket that need to be planned for. One of the largest which we have already talked about is Long-term Care. Outside of LTC, Medicare Part A and B do not cover dental care which can prove costly as well as hearing aids and exams and routine physical exams. These expenses pile up and often can be forgotten by those who think Medicare will cover any and all of their needs. The point of bringing up these expenses is not to scare my audience, but to make sure we are planning for these things. Adequate budgeting for retirement requires a comprehensive look at your expenses. If you still have 20+ years until you will be reaching retirement, you have a lot of time to calculate what kind of savings you will need to accumulate to reach this goal. Our planning software, RightCapital, provides opportunity to plan for all of these expenses and many more. Feel free to check out the software below!

As always, have a great week!

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss