If your goal is to have a financially secure lifestyle, then you may want to treat the odds of you (or your spouse) needing long-term care as a fact. As we will see later on, the odds of some long-term care needs go up as people progress in their retirement years. This possibility can derail even the best-laid retirement plan if it isn’t adequately accounted for in retirement income planning projections. Nor will Medicare pay for many long-term care services and supports, as is often believed.

In this article, we will go over the basics of long-term care, how much it can cost you, and some strategies that can give some financial relief so that long-term care doesn’t drain your retirement savings.

What is Long-Term Care?

Long-term care is a type of living care provided by a professional of some sort. The care professional can be a nurse, a home health aide, or another provider who is trained to help people who can’t perform at least two out of six activities of daily living by themselves.

In healthcare circles, activities of daily living are known as ADLs for short. The six ADLs are:

• Eating
• Bathing
• Toileting
• Transferring
• Continence
• Dressing

What Are the Three Basic Levels of Long-Term Care?

Long-term care services can be given to people on three separate levels: home healthcare, assisted living care, and nursing home care. Let’s break down each level of long-term care below:

• Home healthcare – This is where a professional such as a nurse comes to the home of the patient and administers whatever type of medical care is needed. This is the most popular form of care because it doesn’t require the patient to leave their home. In retirement circles, it’s part of what is called “aging in place.”
• Assisted living care – This level of care requires the patient to move into a community where many services are provided for them. Those services may include housecleaning, cooking, and other tasks that the patient may no longer be able to do. Medical professionals stand ready to help those in the community who need them.
• Nursing home care – This is the highest level of long-term care. Here, the patient moves into a nursing home and is constantly monitored by skilled workers and medical staff. This is the most expensive type of care that one can get, with a private room costing thousands of dollars per month.

How Much Does Long-Term Care Cost?

The cost of long-term care can vary widely. It depends on the level of service that you need, your geographic location, and other personal factors such as your age and health condition. That being said, all forms of long-term care generally require a major investment of capital in one way or another.

One survey conducted by a major insurance carrier, Genworth, shows that patients in the Philadelphia metro area could expect to pay about $64,000 per year for in-home care in 2021. That was a whopping increase of 11.8% compared to the year before.

Adult daycare costs about $21,000 per year, and an assisted living facility costs about $64,000 per year. But a semi-private room in a nursing home costs over $137,000 and a private room runs around $155,000 per year.

In Kansas, home healthcare and assisted living facilities run around $55,000 per year. On the other hand, a semi-private nursing home room costs about $75,000 per year, and a private room costs about $82,000 per year. So, you can see that prices vary substantially according to location.

Patients who have dementia will need an average of $357,000 worth of care before they die, according to the Alzheimer’s Association. The average savings of a couple in their sixties is about $220,000. This is why long-term care insurance or other financial strategies for long-term care are an important part of retirement planning.

The costs of long-term care are rising quite a bit faster than overall inflation, so that might be good to remember as you put together a plan for long-term care in retirement.

What Are the Odds That Someone Will Need Long-Term Care?

If you turn 65 this year, the odds are at least 70% that you will need some form of long-term care before you die. The odds of this are higher for women than men, but that is the average.

There is more than a 40% chance that you will end up in a nursing home at some point. Perhaps most foretelling about these odds is the trend that 40% of individuals receiving long-term care today are between the ages of 18 and 64.

What is the Average Age for a Long-Term Care Claim?

A recent study of over 5,000 long-term care insurance policyholders conducted by the American Association for Long-Term Care Insurance revealed that the average age for those who submit claims is 80 years old. This number is down slightly from the results of their 2018 survey, where the average age a claim was filed was 86.

So, that can mean that long-term care needs and spending might go up especially when someone reaches their 80s.

How to Pay for Long-Term Care

There are several ways that you can pay for some or all of your long-term care expenses. Perhaps the most straightforward solution is to buy a long-term care insurance policy, also known as “LTCi.” These policies may have a monthly or daily limit on the amount that they will pay, and coverage will last for a pre-set period of time.

Another option is to buy a life insurance policy that has accelerated benefit riders, also called “living benefits.” In certain situations, the riders will pay out a certain portion of the death benefit while the insured is living if they unable to perform at least 2 out of the six ADLs. Many life insurance policies today have chronic or critical illness riders that will pay out a monthly or annual amount if needed.

Many annuities now also offer protection against long-term care costs by doubling or tripling their monthly payouts if the insured meets certain criteria. This increased payout can last anywhere from one to five years, depending on the carrier and the specific annuity product being used.

If you can’t qualify for life or long-term care insurance and have no money in annuities, you can still do the Medicaid spend-down strategy. This is where you spend down your assets to a very small sum of money, such as $2,000, so that you will qualify for nursing home care in a state-run facility.

However, these facilities are usually not nearly as nice as private facilities, and it will cost you most of your net-worth to do this. Also keep in mind look-back periods for Medicaid qualification.

Finally, if you have the cash, it may make the most sense to simply self-insure and hope that you won’t need care. But that can be risky, especially as healthcare costs rise. Also, you may not wish to fork out a lot of your hard-earned retirement dollars for long-term care.

If that is the case, these insurance products can pay a multiple in benefits for each dollar of premium put in. Talk to your financial professional if that dollar-maximization play sounds appealing to you.

How to Plan Ahead for Long-Term Care Costs

If you are in your fifties and are making out your retirement plan, now is the time to buy long-term care insurance (or potentially life insurance or annuities with the long-term care benefits as mentioned earlier). LTCi will be much more affordable now than it will be when you are in your 60s or older.

If you have hired a retirement financial professional, make sure that they incorporate what will happen to your assets if you need some form of care. You can also move some of your retirement plan money into an annuity with long-term care benefits that protects your principal while still growing.

The Bottom Line on Long-Term Care and Retirement

The importance of planning for long-term care can’t be overstated. To avoid financial surprises or other unpleasant mishaps, it’s good to start looking at this possibility long before you need it after you retire.

Consult your financial advisor for more information on long-term care and how it can impact you. They can guide you through what they have seen for other people’s experiences and some strategies to guard against the high costs of long-term care should you need it.

If you are looking for a financial professional to assist you, you may look at someone who is independent versus captive. Or in other words, someone who has the business freedom to explore options from multiple insurance and financial companies instead of one parent financial company.

If that sounds like a fit for your situation, many independent financial professionals are available here at SafeMoney.com. You can get started with an initial, complimentary appointment to discuss your financial situation, goals, and concerns. Connect with someone directly by visiting our “Financial Professional” section. Should you want a personal referral for yourself, please call us at 877.476.9723.

The post What Is Long-Term Care? Breaking Down the Basics for Retirement Planning first appeared on SafeMoney.com.

According to an article on healthcare publisher FierceHealthcare.com, PricewaterhouseCoopers says it’s hard to tell what may be ahead for future healthcare spending. The professional services firm recently unveiled a new report on medical costs for employer-based health insurance plans, which had new some firsts.

For the first time ever in 13 years of doing this, PwC ran scenario-based analysis for its healthcare projections — instead of a single overall projection for medical costs.

A Never-Before-Seen Situation for Healthcare Spending Forecasts

“This is an unprecedented report for us,” Ben Igur, head of PwC’s Health Research Institute told FierceHealthcare.com. “In the 13 years we have been doing this, we made a projection of the coming year and never felt the need to do scenarios.”

For 2020, PricewaterhouseCoopers had estimated that the medical cost trend would increase 6% — a healthcare cost projection that is close to estimates by other research groups, such as Fidelity and HealthView Services.

What about its three scenarios for the future? Those range from 4% to 10% for 2021, depending on how much healthcare spending rebounds in the latter parts of 2020 and what future outlooks are.

PwC expects for a rebound later and in 2021. Now, what does this mean for you in retirement?

Healthcare, Retirement, and You

The uncertainty of future healthcare costs comes at a time when healthcare spending has been mostly on the rise and record millions of Americans are retiring. Waves of baby boomers joining the ranks of the newly retired introduces new demands on healthcare providers and Medicare, which then contribute to overall cost trends.

As for what healthcare costs might run retirees over the long run, Sarah O’Brien on CNBC wrote a piece on what it might cost you. According to O’Brien, Medicare covers approximately two-thirds of healthcare costs for its 62.4 million or so “beneficiaries.”

“Depending on the specifics of your coverage and how often you use the healthcare system, your out-of-pocket costs could reach well into six-figure territory over the course of your retirement,” she writes. 

These numbers are based on a report by the Employee Benefit Research Institute. It estimates that out-of-pocket healthcare costs for men during retirement will equal approximately $130,000, while the cost for women will rise to $146,000.

Why Is There a Difference?

The discrepancy between the two genders is due primarily to their longer lifespans and propensity to take better care of themselves. But healthcare costs are expected to rise in general, regardless of how much they actually increase.

This also doesn’t account for other health concerns like long-term care, which can bring their own cost pressures to bear.

What Can You Do to Plan for Healthcare in Retirement?

So, what can you do to plan for healthcare expenses so that they don’t detract too much of your income from your other areas of your lifestyle?

Include Healthcare Spending in Your Retirement Financial Plan

First of all, be sure to include forecasts for healthcare spending in your retirement plan. As you saw earlier, many reports and commentaries provide lump-sum estimates for healthcare spending over someone’s retirement lifespan.

But in many ways, it’s easier to plan for healthcare as an annual expense. Based on various research sources, once someone hits their mid-70s, their healthcare expenses usually begin to pick up considerably.

Estimating Retirement Income Needs in Your Plan

A rock-solid retirement income plan will have estimated numbers for monthly and annual spending as well as cash-flows. This article on healthcare expenses per year can help in this effort.

Your financial professional can help you estimate what your health costs might look like on these bases, as well.

Liquidity is an important part of your financial strategy for retirement. As one part of your game-plan, you might consider having a dedicated bucket of liquid money for health expenses as they may arise.

Ask your financial professional about this strategy option as well as others to be outlined below.

In Pre-Retirement, Tap Health Savings Accounts

If you have some time before retirement, look at ways to fund a health savings account so you have dedicated funds for healthcare spending.

This is one of the best accounts available to retirement savers today. If you contribute money to an HSA, the contribution is tax-deductible. Also, your money grows tax-free while it’s in the account.

If you use your withdrawn money for qualifying medical expenses, the withdrawal can also be tax-free, as well. However, to qualify for a health savings account, you must have a high-deductible health insurance plan.

Once you reach age 65, you become eligible for Medicare, which means you can’t contribute to an HSA anymore. You also have the ability to transfer money from an IRA or employer plan into an HSA if you so choose.

Carefully Consider Medicare Options

If you are near age 65 or have reached that point, take a careful look at your Medicare coverage. What people choose for Medicare coverage can be one of the most important decisions they make about their retirement.

Certain plan choices that you make are locked in for the year once you have applied for it. So, it’s prudent to walk through all of your options with a financial advisor or agent who understand the ins-and-outs of Medicare well.

How Do Different Medicare Options Compare?

Yes, Medicare Advantage plans mean less money for premiums. But you are likely to shoulder more of your health costs out-of-pocket throughout your retirement.

By choosing a Medicare supplement plan, you will pay more for premiums. However, in exchange you can have some relief for your pocketbook. The health insurer will cover more of the lion’s share of healthcare costs in exchange for those premium payments (which can mean less in out-of-pocket costs on your side).

No matter what, the direction you take for Medicare coverage should make sense for your financial picture. Your financial professional can help you weigh your options against your annual retirement cash-flow and how much income you will need for everything else, all relative to your healthcare needs.

Explore Other Insured Solutions for Cost Relief

Look into other how other insurance-based solutions can help take health cost burdens off your shoulders.

Many insurance solutions exist for risks like long-term care costs, from annuities and advanced life insurance products to asset-based long-term care policies. Your financial professional can help you determine this.

Receive Enhanced Income for Long-Term Care

One possibility is to look at asset-based annuities that can double or triple their payouts if you become incapacitated or need any form of long-term care.

While you enjoy this stepped-up income due to your changing health situation, many of these contracts provide this stepped-up income for a certain timespan. Check with your financial professional about the terms and timespans of any annuity contracts like this you may be exploring.

Pay for Care with Tax-Advantaged Proceeds

Another alternative is to buy a life insurance policy that has accelerated benefit riders. What is the benefit of these riders? They can pay you tax-free cash proceeds from the death benefit of the policy if you need long-term care.

These policies are becoming increasingly valuable as the cost of long-term care continues to skyrocket. What’s more, long-term care policies are also becoming correspondingly more expensive.

Why Are People Turning Away from Long-Term Care Insurance?

Long-term care insurance was considered the darling of the insurance industry back in the early nineties. But the huge cost of this service effectively forced many insurers to keep raising their premiums or else cancel their coverage.

Those who couldn’t afford to keep up with the cost of their policies were usually forced to let them lapse. In turn, that left them with nothing to show for what they paid. Then they had no form of long-term care insurance. For this reason, accelerated benefit riders were introduced into life insurance policies.

This isn’t to say there is no place for long-term care insurance in a retirement financial plan. Your financial advisor can walk you through these advantages and disadvantages of this insurance coverage as well as your other insured options.

What Is the Upside of These Life Insurance Policies?

That said, perhaps the greatest advantage that these life insurance policies can offer is the guaranteed payout that they give.

If you end up never needing to use any accelerated riders, then you still have the cash value and death benefit to fall back on. It’s therefore impossible to “lose” with these policies.

Plan for Your Financial Confidence in Retirement

Your financial professional can help you walk through these options and scenarios to see what might make sense for you. Consult with your financial advisor to see what other options may be available to help you cover your medical expenses during retirement.

What if you are looking for a financial professional to help with your retirement? Or perhaps you want another opinion of the existing plan you have in place for your healthcare spending and your retirement income in general.

No sweat, many independent financial professionals are available at SafeMoney.com to assist you. Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

The post What Can Happen to Healthcare Spending in the Future? first appeared on SafeMoney.com.

Sponsored by Nationwide Life Insurance Company, the survey was conducted from March through April of 2019. The 1,462 people who were polled were at least 50 years old. This group was a mix of pre-retirees, current retirees, and folks who had been retired for at least 10 years. An additional 516 caregivers were also polled.

The findings? Most of the retirees greatly underestimated their retirement healthcare costs. The majority predicted they would need to spend roughly $7,000 a year on healthcare in retirement. Nationwide estimated the real cost would be closer to $10,739 for the average retiree.

The insurer’s health cost estimate was based on the Summary of National Health Expenditures, with reported spending data from the 1960s to 2017.

Healthcare and Top Financial Stressors

Future retirees seem to be the group most concerned about healthcare costs in retirement. Three-quarters of future retirees stated that they are at least somewhat concerned about paying for retirement healthcare costs.

In regard to stressors, 63% of future retirees said that paying for healthcare was their top concern. Meanwhile, 62% feared a major decline in health after they stop working.

In fact, future retirees showed themselves to be the most concerned about all retirement-related financial issues, including healthcare costs, long-term care, health insurance, Social Security, taxes and retirement. Recent retirees came in second in most categories and those who have been retired for at least 10 years were last.

Retirement Goals Don’t Include Healthcare Planning

However, the survey also revealed that while healthcare may be the top concern for future retirees, planning for this isn’t their primary goal.

Among those not yet retired, 72% of them are more concerned about paying for living expenses. Their second most common goal is paying for travel expenses. And perhaps most surprisingly, only 45% of future retirees planned to discuss their concerns with a financial advisor.

The reasons for not doing so are broken down as follows:

• 21% – prefer to discuss with (future) spouse
• 19% – it’s a personal issue
• 15% – I don’t know enough about the topic
• 13% – financial advisors don’t know enough about the topic
• 12% – prefer to work with a health insurance specialist
• 12% – prefer financial advisor not know about my health issues
• 10% – healthcare costs aren’t a problem
• 8% – don’t want to think about health problems
• 5% – prefer to discuss with my children
• 4% – waiting for financial advisor to bring it up
• 4% – financial advisor recommended options that were too expensive
• 14% – don’t have this relationship

Gaps in Education and Understanding

In the poll, affluent older adults were much more likely to discuss healthcare costs with a financial advisor than their non-affluent counterparts.

37% of affluent respondents said that they would do this. In contrast, only 22% of non-affluent respondents indicated they would do so. But both of those numbers are alarmingly low. They clearly show that financial advisors need to be more proactive with healthcare planning for their clients.

The survey also clearly shows a significant gap in understanding among the respondents on a variety of financial topics.

For example, 55% of future retirees who have a Health Savings Account (HSA) aren’t making contributions to it. And 52% of future retirees only use their HSAs for current medical expenses.

Two-thirds of future retirees said that they wish that they understood Medicare better than they do. A whopping 79% of them thought that Medicare Part B is free to anyone who has worked and paid Social Security taxes for at least 10 years

Knowledge Gaps on Long-Term Care and Future Health Costs

Furthermore, three-quarters of future retirees have no form of long-term care coverage. Not only that, an alarming 86% of them thought that Medicare covers long-term care costs.

Less than half of future retirees felt that they could estimate what their retirement healthcare costs would be. Meanwhile, about a third of them estimated that their annual healthcare costs would be somewhere in the $1,000 to $5,000 range. That is a far cry from the $10,739 estimate from Nationwide.

The Price Tag of Retirement Healthcare Needs

According to Fidelity, the average 65-year-old couple retiring in 2019 can expect to spend about $285,000 on healthcare during retirement.

The estimated cost for single men is $135,000 and for single women, it’s $150,000. And the Nationwide-sponsored survey also shows that nearly half of all respondents stated that they would have saved more for retirement than they did if they had it to do all over again.

Delaying taking Social Security came in a distant second, followed by working longer, taking better care of their health and buying long-term care insurance.

Strategies for Covering Healthcare Costs during Retirement

So, what can you do to be more ready to hold costly healthcare needs at bay? Here are a few pointers:

Understand Your Options

Learn all you can about Medicare, Medicare Part B, and supplemental coverage. Find out if you have any other options that you can use to pay for healthcare costs, such as through your former employer or perhaps a fraternal organization that you belong to.

Talk to your financial planner about your concerns and come up with a plan. As Benjamin Franklin once said: “An ounce of prevention is worth a pound of cure.”

Incorporate Medicare in Your Plan

Sign up for Medicare as soon as you are able. And don’t forget to explore whether to some supplemental coverage on top of this.

There are many medical bills and prescription drug costs that Medicare doesn’t pay. Take the time to explore which supplemental plan is right for you. The best choice will depend on your finances, your health, and your spouse’s health, if you have a spouse.

Leverage HSAs and Their Benefits

Open an account dedicated to healthcare spending, such as a Health Savings Account. Depending on your personal needs and situation, you might consider exclusive use of this account for payment of health insurance premiums as well as deductibles and copays.

Contributions to a Health Savings Account are tax-deductible. Not only that, withdrawals are tax-free as long as they are used to pay for qualified medical expenses (and the IRS’s definition of this is very broad). You can also roll a retirement plan over into a HSA if you have one to spare as long as you are younger than 65.

Explore New Options for Long-Term Care Cost Relief

Check out the new wave of financial products that can protect you from long-term care expenses.

There are annuities that will double or triple their payout to you if you qualify under certain conditions. Those circumstances may kick in if you need any form of long-term care or if you become unable to perform at least two out of the six activities of daily living.

Some life insurance policies also have accelerated benefit riders that will pay out if you become disabled or need nursing care.

Retiring Before 65? Consider “Bridge” Health Coverage Choices

If you are retiring before age 65, consult with your former employer about possible “bridge” health insurance to cover you until you are eligible for Medicare.

Put Your Healthcare Planning Strategy in Place

Don’t wait another day to begin planning for how you can pay for healthcare after you retire. Consult with your financial professional to map out a battle plan that can leave you standing financially firm during this last phase of your life.

What if you are on the lookout for personal financial guidance right now? Or maybe you want a second opinion of your existing plan and how well-prepared you are for healthcare in retirement.

Help is a click away at SafeMoney.com. Use our “Find a Financial Professional” section to connect with someone directly for an initial appointment. Should you need a personal referral, call us at 877.476.9723.

The post Study: Many Retirees Underestimate Healthcare Costs When They Retire first appeared on SafeMoney.com.

Some experts, such as Christine Benz with Morningstar, believe the probability can be quite high. In one of its bulletins (in which it also interviewed Benz), AARP estimates a 50 percent chance of someone needing some form of long-term care (LTC) at age 65 and beyond.

Of course, these statistical forecasts might not end up reflecting your personal situation. The truth? The answer may range anywhere from a price tag of zero to the need of skilled nursing care that costs hundreds of thousands of dollars over several years.

As fuzzy as that picture is, you can still plan effectively for the future potential costs of long-term care, not to mention other healthcare expenses.

Long-Term Care Planning with Spouses

Hopefully we all have a significant other we are sharing our lives with at the start of retirement. As we age gracefully and make our way through the arc of retirement, this trusted partner will be your first primary caregiver.

If you have good genes, exercise daily, eat and sleep well, and have lady luck on your side, there might be good news.

You may be able to navigate most of your retirement by one partner taking care of the other without any major long-term care needs and costs. This optimistic scenario includes a baseline of (mostly routine) healthcare costs that in your 30-year retirement plan (PLAN.xls).

Caring for Each Other

This would assume that your healthcare needs would be covered by a combination of Medicare and supplemental health insurance coverage. For some people, it may even include some coverage by Medicaid.

While you are both physically and cognitively healthy, you can support each other with what the LTC industry calls “Activities of Daily Living” (ADLs) and “Instrumental Activities of Daily Living” (IADLs):

However, some researchers with the Department of Health & Human Services have estimated you might need outside help. Their findings?

There might be a 50% chance you might need some level of LTC services at some point in retirement, once you no longer can provide the ADL and IADL support yourself.

So, best plan for some outside help.

Gather Some Realistic Long-Term Care Cost Data

The first step in developing an LTC plan is to gather the most accurate and current service provider cost data available.

Just as you do when looking for a good plumber, keep your ear to the ground during every conversation. You might pick up good information about what these kinds of services cost in your region, and who are the good providers.

Follow this up with direct calls to providers to get their current costs for services. But, for starters, the following are ballpark costs from a recent Genworth “Cost of Care” survey:

• Adult Day Healthcare: $1,500/month
• Assisted Living Facility: $3,750/month
• Homemaker Services: $4,000/month
• Home Health Aide: $4,100/month
• Nursing Home: $7,600/month

Be advised, these costs can vary substantially depending upon where you live in the country.

Scenario Planning with Your Retirement Plan

You may choose to first do this yourself, or in collaboration with your financial professional. Save a copy of your retirement plan (“PLAN.xls”), and you might rename it as “PLAN-LTC.xls”.

Using the cost data you have assembled, run separate scenarios to see how they impact your baseline retirement budget (no LTC costs).  For example:

• Scenario #1: Add a line item for “Adult Day Healthcare,“ $1,500/month, 1 year; or,
• Scenario #2: Add a line item for “Home Health Aide Services,” $4,100/month, 2 years; or,
• Scenario #3: Add a line item for “Nursing Home,” $7,600/month, 3 years; or,
• Scenario #4: ?

You might assume that these services are for one partner in the couple. In this scenario, the other partner might not need these services but couldn’t provide the ADL and IADL support themselves.

As you can see, this iterative process of testing scenarios can be done many ways. However, for all of us, there is no way to know what will actually come to pass.

But you can test the ability of your retirement resources accumulated to date, to absorb these future costs without significantly compromising your retirement security. 

Based on the outlook from your Scenario Testing in your plan, say you and your financial professional believe that there could be substantial risk down the road if you don’t additionally insure against this risk.

Then you should ask the financial professional to recommend some insurance/annuity options that will definitely help cover probable future LTC costs.

Additional Options to Fund Future LTC Services

Your SafeMoney financial professional can present the following (and more) financial instruments that will fund LTC future costs to whatever target amounts and year(s) you select. These options include:

• Long-term care insurance that offers traditional coverage for long-term care needs
• New-generation life insurance policies with living benefits
• Asset based long-term care policies that can provide tax-free benefits

Here, you are comparing:

• paying LTC insurance premiums today for guaranteed payouts in the future;

vs,

• investing those LTC premiums yourself (self-insuring) with the hope that this strategy will perform financially at least as well over time as the LTC insurance

This is a complicated calculation that involves your tolerance for economic risk (stock market volatility) and many other factors.

Developing Your Long-Term Care Strategy

Your financial professional has the knowledge and experience to talk you though this. They can help you apply sound decision-making principles to your unique set of conditions.

Just remember, this guideline can help you weather the storm and possibly bring you more peace of mind. Keep your spending in retirement equal to or less than what you earn every year of retirement; always reinvest the annual surplus; and you and your partner will be fine.

Putting a Long-Term Care Strategy into Action

Do you need help evaluating your potential long-term care needs in retirement — and different options that can be a viable strategy for your situation? Or perhaps you would like a second look at your existing long-term care strategy.

Either way, financial professionals at SafeMoney.com can assist you. You can request financial guidance by visiting our “Find a Financial Professional” section and connecting with someone directly. Should you need a personal referral, call us at 877.476.9723.

The post Retirement Planning for Long-Term Care first appeared on SafeMoney.com.

While living to a ripe old age sounds great—and statistics show that many of us might be headed in that direction—the idea of not being able to fully care for ourselves is so daunting that we put off planning for it, or perhaps never plan for it at all.

Yet it’s an issue that is much better dealt with now, when we are best equipped to explore our options.

Maybe it’s sticker shock that prevents some of us from taking action. The cost of long-term care, known as LTC, is well reported. Genworth, a provider in the long-term insurance space, has published its Cost of Care Survey for the last 15 years.

The most recent figures in Genworth’s 2018 report highlighted these annual national median costs:

• Homemaker Services: $48,048
• Home Health Aide: $50,336
• Adult Day Health Care: $18,720
• Assisted Living Facility: $48,000
• Semi-Private Room in a Nursing Home: $89,297
• Private Room in a Nursing Home: $100,375

To see how the costs compare where you live, Genworth offers a handy tool that can even project these expenses into the future as you reach certain ages.

How Partnership Programs Might Help You

Unless you have begun researching long-term care, you may not have heard about one option at retirement investors’ disposal, long-term care partnership programs.

The Partnership for Long-Term Care, part of the Deficit Reduction Act of 2005, was created to pave the way for private long-term care insurance plans to work in tandem with Medicaid. The goal was to help people who are caught in the middle of the two options.

The issue for many middle-income and retired Americans is that they are unable to afford the cost of a long-term-care policy. And yet they can’t qualify to have Medicaid pay their long-term-care expenses because they have too many assets.

Increase Your IQ on PQs

To serve the people caught in this gap, participating insurance companies provide special Partnership-qualified (PQ) LTC insurance policies and states who participate allow people holding these policies to have access to Medicaid without depleting their assets to almost poverty levels if the insurance benefits run out.

According to LongTermCare.gov, the official website managed by the U.S. Department of Health & Human Services, these PQ policies:

• Help people purchase shorter term, more complete long-term care insurance
• Include inflation protection, so the dollar amount of benefits you receive can be higher than the amount of insurance coverage you purchased
• Allow you to apply for Medicaid under modified eligibility rules if you continue to need long-term care and your policy maximum is reached
• Include a special “asset disregard” feature that allows you to keep assets like personal savings above the usual $2,000 Medicaid limit.

How Does a Partnership-Qualified Long-Term Care Policy Work?

This example from the LongTermCare.gov illuminates how the PQ policy works:

• John, a single man, purchases a Partnership policy with a value of $100,000.
• Some years later he receives benefits under that policy up to the policy’s lifetime maximum coverage (adjusted for inflation) equaling $150,000.
• John eventually requires more long-term care services, and applies for Medicaid.
• If John’s policy was not a Partnership-qualified policy, in order to qualify for Medicaid, he would be entitled to keep only $2,000 in assets.
• He would have to spend down any assets over and above this amount.
• But because John bought a Partnership-qualified policy, he can keep $152,000 in assets and the state will not recover those funds after his death.
• John would only have to spend down his assets over and above the $152,000 in order to be eligible for Medicaid.

Partnership-qualified policies are required to include inflation protection. So, as shown in the example above, your benefit amount could be higher than the amount of insurance protection you purchased.

Policies May Differ From State to State

In most states, the Medicaid asset limit is $2,000 for a single person, and often higher for couples. With a Partnership-qualified LTC insurance policy that provides you $100,000 in benefits, you can apply for Medicaid and, if eligible, retain $100,000 worth of assets over and above your state’s Medicaid asset threshold.

Each state that participates outlines specific requirements the Partnership policies must meet. They also outline who is eligible to sell these policies to consumers, ensuring that agents are trained in Partnership policies and how they fit into the big picture of public and private coverage options.

Don’t let unplanned for long-term-care expenses take a wrecking ball to your retirement income resources and assets. If your long-term financial plan has limited assets to work with, this may be an option to check out.

First confirm that your state offers this program by contacting your state’s Department of Insurance. Then reach out to an insurance professional who can help you walk through different policy options that help you meet this need.

Need Help Planning for Long-Term Care?

Of course, partnership plans are just one possibility for managing long-term care needs. There are other long-term care strategies that you might explore, including asset based long-term care policies. And long-term care is just one part of a retirement financial picture.

Should you need help putting together a reliable long-term care strategy, help is a click away. Financial professionals at SafeMoney.com are ready to assist you.

Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

The post Using Partnership Plans in Long-Term Care Planning first appeared on SafeMoney.com.

Nobel laureates are certainly top achievers. In 1988, Leon Lederman won a Nobel Prize for his work in physics. Apart from award-winning research into subatomic particles, he is famous for coining the infamous name of the Higgs bosin: the “God particle.”

Lederman passed away in a nursing home in Idaho on October 4. He was 96, according to the Associated Press. The AP describes him as a “giant in his field who also had a passion for sharing science.”

While Lederman’s contributions to science speak volumes, another striking story of him emerges from a past headline by NBC News.

And what happened? In 2015, the physicist was forced to auction his Nobel medal so he and his family could cover healthcare expenses. The medal sold for $765,000. It was a winning bid of $633,335 plus a buyer’s premium that drove the medal to its $765k sell price.

It’s yet another example of how high-cost retiree healthcare needs can change the financial situation of any of us.

Changing Health, New Challenges

Back when he received a Nobel Prize in Physics, Lederman used his winnings to buy a log cabin near the small Idaho town of Driggs. The cabin was intended as a vacation home.

But Lederman and his wife moved there as full-time residents in 2011, when Lederman started having significant memory loss issues. In time, they turned to an online auctioneer to sell his Nobel medal. From that they would use the proceeds to pay for care services relating to his dementia.

Speaking to NBC News at the time, Ellen Lederman, his wife, observed that the diagnosis of dementia had raised the prospect of costly medical bills and uncertainty for them.

“It’s terrible. It’s really hard,” she explained. “I wish it could be different. But he’s happy. He likes where he lives with cats, dogs, and horses. He doesn’t have any problems with anxiety, and that makes me glad he’s so content.”

Lederman’s uphill battle against costly medical bills is one of many examples of how healthcare expenses can add up in retirement.

Healthcare Cash Register Just Keeps Ringing

According to the Bureau of Labor Statistics, the top expenditure for retirees tends to be housing costs. But health costs can add up, especially with aging, when dependence on health services and prescription drugs grows.

Take, for instance, the area of long-term care. Just the cost of long-term care services and supports can be quite staggering.

In 2017, the median cost of a private room in a nursing home was $8,121 per month, according to data from Genworth. Overall, the price tag for a private room has risen more than 31% since 2009, Genworth reports.

How Much is the Lifetime Tab for Healthcare Spending?

And what about the cost of medical services, not to mention other healthcare needs?

HealthView Services, a healthcare research firm, sketched out estimates of total lifetime retirement healthcare costs. It based its forecasts on healthcare claims from 70 million individual cases, actuarial, and government data sources. The projections include Medicare Parts B and D, supplemental insurance premiums, and dental premiums paid.

According to HealthView, a healthy 65-year-old couple retiring in 2018 could pay as much as $363,964 in today’s dollars for total lifetime healthcare costs. That doesn’t include the cost of any potential long-term care services, most of which aren’t covered by Medicare.

When the forecast is adjusted for future dollar value, a retirement-age couple may face as much as $537,334 in lifetime healthcare spending.

Rising Faster Than General Inflation

HealthView estimates that first-year health expenses may be $11,752. From there, costs will rise, driven by healthcare inflation.

Estimates of annual health costs at different ages can be seen in the graph above. While healthcare inflation is outpacing general inflation – which has held steady around 2.7% over the past year – it’s slower than in prior years.

HealthView forecasts that retirement healthcare expenses will increase at an annual average rate of 4.4% – down from its annual inflationary expectation of 5.5% from last year’s report. A slowdown in the growth of prescription drug costs was partly responsible for the slower pace of expected healthcare inflation.

Planning for Financial Security in Retirement

In an interview with Money.com, firm head Ron Mastrogiovanni emphasized that HealthView’s cost projections don’t include employer assistance with health costs.

“These estimates don’t account for the fact that, while working, your employer picked up about 75% of your healthcare costs, Mastrogiovanni says. In retirement, the costs are all on you, unless you’re one of the dwindling number of workers who has company-sponsored retiree medical insurance. ‘More and more of the coverage is on our shoulders,’ Mastrogiovanni says.”

Mastrogiovanni also recommends being aware of the likelihood of medical and health costs increasing with age. “Every year as we get older, healthcare eats up a bigger portion of what we spend on a fixed income,” he explains.

So, what can Americans do to help prepare themselves for healthcare spending in retirement – and still enjoy a comfortable retiree lifestyle?

Understand Your Options

According to experts, the first step is understanding what is available to you. Medicare, which Americans become eligible for at age 65, will cover a number of medical expenses, but not everything.

Mastrogiovanni notes that some of the items it doesn’t cover are routine dental care, vision, hearing aids, and most forms of long-term care.

Apart from Medicare coverage and supplemental insurance, there are a number of other options that can help with cost relief.

Healthcare Cost Relief Options

One possibility is a health savings account (HSA), which allows you to accumulate money within the account on a tax-free basis. People can withdraw funds from an HAS on a tax-free basis when they use the money for qualifying medical expenses. Section 213(b) of the tax code spells out what qualifies in further detail.

Apart from Medicare coverage, you may have some cost relief potential with certain life insurance policies. In recent years, life insurance carriers have updated and innovated life insurance contracts to have “living benefits.”

In other words, death benefit proceeds can be accelerated when a policyholder is living to pay for certain qualifying life events. Those include specific emergencies, terminal illnesses, confinement care situations, and other life events as outlined by a life insurance contract.

Be Familiar with Medicare

Medicare has different components: Parts A, B, C, and D. Here’s a general overview of what Parts A, B, and D involve.

Medicare Part A

Medicare Part A is hospital insurance which covers in-patient services in hospitals, critical access hospitals, and skilled nursing facilities. Its coverage may also apply to some hospice and home health services. When people apply for Medicare, they are automatically enrolled in Part A, and no monthly premiums are involved. An annual deductible must be paid before hospitalization costs are covered, however.

Medicare Part B

Medicare Part B is medical insurance and is optional. You pay premiums, which will be deducted from your Social Security checks. It means you have three months before you turn 65 to three months afterward for you to decide to sign up.

Being late for this enrollment period may mean higher premiums, unless you qualify for a special enrollment period. If employer-sponsored retiree medical insurance is available to you or is available through your partner’s employer, you may want to confer with the human resources department about your options.

Medicare Part D

Medicare Part D is optional and helps with prescription drug costs. It’s available to enrollees in Parts A and B as well as most Medicare Advantage plans.

With a Part D plan, you will have to pay a monthly premium and sometimes a deductible. You will also be responsible for copayments on prescription drugs.  Each Part D plan will be different in its scope of coverage, including what is covered and what is not.

Options for Covering Long-Term Care Costs

For long-term care needs, a variety of insurance solutions may be tapped:

• Long-term care insurance
• Asset based long-term care policies
• Annuities with long-term care benefits
• Life insurance policies with living benefits for confined care

These different offerings can help provide cost relief by leveraging the assets of an insurance company toward different LTC expenses. Each option may come with its own requirements. That may include an inability to perform certain acts-of-daily-living for a policy to start paying benefits.

Other factors to consider include scope of coverage, how long an insurance carrier might pay benefits for, whether cost of insurance (and premiums) will go up, and what situations wouldn’t qualify as coverable events.

Be sure to explore any of these insurance options with an experienced, knowledgeable insurance-licensed advisor or agent.

Planning for an Income-Secure Retirement

While healthcare spending can be costly, it’s just one part of retirement. One of the primary concerns of retirement planning is ensuring you have enough income and assets to maintain your lifestyle. You also want to be sure your savings and assets last as long as you need them.

If you could benefit from guidance in getting your retirement financial strategy in order, help is a click a way. Financial professionals at SafeMoney.com stand ready to assist you.

Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

The post This Nobel Prize-Winning Physicist Sold His Medal to Help Cover Medical Expenses first appeared on SafeMoney.com.

Such a substantial sum seems hard to account for. Not only that, a number of national healthcare cost surveys leave out the costs of long-term care in their estimates. Others treat long-term care as a separate area of expenses from retirement health costs. Either way, many Americans don’t know where to even start with planning for potentially high-cost health events during their golden years.        

Well, here’s some good news: planning for retiree health and long-term care costs is well within reach. In that Vanguard report, researchers found a more palatable way for educating people to take action about their retirement health needs: framing healthcare costs as annual expenses, not as a substantial lump sum.

Costs of Retirement Healthcare: An Annual vs. Cumulative Look

In its research, Vanguard engaged Mercer Health and Benefits to develop a new model to forecast healthcare costs for U.S. retirees.

“We believe that a better planning framework considers these costs as annual expenses personalized to an individual’s health status, coverage choices, retirement age, and loss of any employer subsidies. For a typical 65-year-old woman, the Mercer-Vanguard model predicts an annual healthcare expense of $5,200 in 2018,” according to the report.

Attribution: BIC.FinancialPlanning.com, Vanguard, Planning for Health Care Costs in Retirement.” Source link, all rights reserved.

This estimate supposes she has Medicare Supplemental Plan F coverage and a standard prescription drug plan. It doesn’t include long-term care or supports costs.

Benefits of a New Perspective

According to the report, the new Mercer-Vanguard model is notable for several reasons:

• It suggests that projecting healthcare costs as a lump-sum is intimidating for many retirement savers, which can frighten them into inaction.
• It makes the process of planning for healthcare in retirement more feasible and manageable.
• It gives more insights into how to plan for healthcare for all households, from single and divorced retirees to married retired couples.
• It separates long-term-care costs from other costly health expenses, so they can each be addressed.
• “Long-term care costs represent a separate planning challenge given the wide distribution of potential outcomes,” the researchers say.

Interestingly, the Vanguard research findings on long-term care needs differ considerably from the findings of other organizations.

Take, for example, recent research from the U.S. Administration on Aging, which reports that most Americans (52%) will need long-term care at some point-of-life. Here, Vanguard found that a less than one-quarter of its surveyed persons would pay less than $100,000 in long-term care expenses. 

“Half of individuals will incur no long-term care costs—but there is a small but meaningful risk that costly care will be required for multiple years,” according to the Vanguard report. And what is the share of those expected to spend in excess on long-term care? 15% of those surveyed, says Vanguard.

For those curious about what long-term care services might cost – here are actual median costs of different LTC services and supports nationally, courtesy of insurance carrier Genworth.

Source: Created by SafeMoney.com, data from Genworth Cost of Care surveys 2009-2017. Source link – All rights reserved.

Individual Results May Vary

Of course, that said, healthcare costs are as individual as we are.

When creating a retirement and financial plan to address ways to prepare for potential costs, there are a number of factors to consider. According to the Mercer-Vanguard model, these variables include:

• Your health status and risk profile,
• the Medicare coverage you choose,
• Your retirement age,
• Where you live,
• Any employer subsidies if you are still working, and
• Anticipated Medicare surcharges for higher-income households.

The combination of these factors should influence a worker’s rate of savings for retirement and healthcare costs, the report says.

Perhaps the most significant among these is your personal and family health history. “Certain health conditions have more impact on future healthcare costs, and most chronic conditions will have manifested symptoms by one’s 50s or 60s,” according to the study.

Smoker status and number of doctor visits were factors chosen to classify risk.

Based on a mix of “prevalence and cost” from chronic-condition data provided by the Centers for Medicare and Medicaid Services (CMS), the Mercer-Vanguard model chose 12 conditions, from heart disease to Alzheimer’s, as a base to establish a retiree’s likely health status.

They included both the individual’s medical history and parental medical history.

3 Different Levels of Risk

The Mercer-Vanguard healthcare cost model divides people into three risk categories: high, medium, and low.

In their estimation, high-risk individuals in their model are smokers, people who visit the doctor frequently, or have two or more of the 12 chronic conditions. Then comes medium-risk individuals and low-risk individuals, who are usually free of chronic conditions.

“During their working years, some individuals should save at higher rates to account for potential future incremental healthcare spending,” the report advises.

“Workers with generous employer health care benefits that may not be offered in retirement and those at higher risk of chronic conditions because of their family history or current health status should target higher replacement ratios,” it adds.

Retirees and working-age Americans will want to consider individual financial strategies for combating high-cost healthcare expenses — like potentially having a set-aside sum of liquid reserves — and don’t forget to consider long-term care strategies, as well!

After all, having to liquidate assets to pay for sudden health needs could trigger an unexpected or substantial tax bill.

Encouragement to Stop Shrugging, Start Planning

“Most analyses available today point to a daunting out-of-pocket health-care expense over the lifetime of a retiree,” according to Jean Young, co-author and senior research associate in the Vanguard Center for Investor Research.

“These large dollar values can be demotivating for investors from a psychological and behavioral perspective. Instead, our model focuses on the more manageable task of planning for incremental, annual healthcare costs, while separately considering and integrating the potential for long-term care expenses.”

Getting Your Own Retirement Financial Plan in Shape

You may have a gameplan for your retirement financial future. But are you confident in whether you are ready for the often-high-cost of long-term care or other health events in retirement? Nothing is foolproof, but a well-thought-out strategy for health needs can go a long ways toward enjoying a financially secure retirement lifestyle.

If you are ready to create a strategy — or you believe you can do more — financial professionals at SafeMoney.com stand ready to help you. Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

The post Unsure About the Annual Cost of Healthcare in Retirement? Here’s Why It Matters first appeared on SafeMoney.com.

For Christine Benz, Director of Personal Finance for Morningstar, it’s the four-ton elephant in the room. “Long-term care is the unsolved problem for so many people,” she told AARP. And probability of use might not be the only reason why. There is also the hefty price tag to consider.

For years, Genworth has tracked the monthly national median costs of various long-term care services in its “Cost of Care Survey.” Those nationwide costs swelled by double-digit percentages from 2009 to 2020, with some LTC services seeing a 30+% cost increase.

“What about state to state?” you may ask. Let’s look at the median expense for a common LTC need, nursing home care, and its cost depends on where you live. In 2020, the least expensive state for a semi-private room in a nursing home was Texas at $5,019 per month. Meanwhile, Connecticut was the most expensive state at $12,927 per month.

Here’s another clincher to think about. Those estimates are without factoring the cost impact of other healthcare needs in retirement as well!

Knowledge is foresight, so it pays to understand the basics of long-term care and what it can entail for retirement planning purposes.

What is Long-Term Care?

According to the U.S. Administration on Aging, long-term care is “a range of services and supports you may need to meet your personal care needs.” These services include medical and non-medical care for people with chronic conditions or disabilities.

Most long-term care actually isn’t medical care services. Rather, it provides care services for those who need help with daily basic tasks. The industry terminology for these tasks is activities of daily living, or ADLs.

Some of the activities that long-term care may help with are:

• Bathing
• Eating
• Dressing
• Caretaking for incontinence or personal hygienic acts
• Using the bathroom
• Transfers to a chair, bed, or other settings

These activities aren’t the only tasks for which someone may receive long-term care. Other critical everyday tasks may also be covered. These activities are called instrumental activities of daily living, or IADLs. Examples of these tasks may include:

• Housework or homemaker services
• Grocery shopping
• Preparing meals and cleanup
• Responding to emergency alerts like a tornado alert
• Help with medication
• Pet caretaking
• Money management
• Phone communications

Long-term care services and support may be administered at home, in a facility, or in retirement community settings.

Who Needs Long-Term Care?

A study by the U.S. Department of Health & Human Services suggests that 1 in 2 Americans turning age 65 will need at least some form of long-term care.

Other estimates put forward by LongTermCare.gov said that as much as 70% of 65-year-old Americans could expect some need for long-term care in the future.

In 2000, nearly 10 million people in the U.S. needed long-term care, according to a 2003 study by researchers Roger and Komisar. In this group, 3.6 million individuals were 65 or older (over one-third of the population).

Overall, HHS researchers have found that age, gender, health condition, and presence of a disability are predictors of long-term care needs:

• As people advance in age, the more likely they will need LTC services.
• Women outlive men by as much as five years, on average, making them more likely to require long-term care.
• Accidental or chronic illnesses, or disabilities, are reasons for why people may require LTC assistance.
• Family history, individual chronic conditions, or poor diet-exercise practices may also up someone’s chances of LTC needs.

How Much Does Long-Term Care Cost?

It may be surprising, but Medicare doesn’t pay for most long-term care. Medicaid does provide some coverage of LTC services at home or in a nursing home facility. However, people must meet certain eligibility requirements for Medicaid.

You can learn more about what Medicare and Medicaid may cover here. 

Since national statistics suggest that half of Americans reaching 65 may need long-term care, it’s good to see what overall costs of long-term care may be. The table below shows national median costs for different long-term care services and supports, with data from Genworth’s Cost of Care Surveys. 

In the graph below, you can see how individual services have risen in cost over time. 

These costs can quickly add up depending on however long you might need long-term care. In one earlier study, HHS researchers said that most Americans requiring LTC services may need assistance for just a couple years.

However, other segments of the population, the researchers project, may require assistance for five years or longer. And even for potentially shorter periods of care, those needs could come out to substantially high overall expenses.

All of this brings up an important question. What strategies or protections can you use to minimize the risk of the long-term care cash register downsizing the quality of your retirement? 

How Can You Pay for Long-Term Care? 

While you will want to consult with a knowledgeable financial professional about your choices, a few options may be at your disposal:

• Self-insurance, if you have sufficient personal assets to do it and they won’t be part of your legacy goals,
• Indexed annuities with wellness benefits or confinement care benefits that can pay you enhanced income for certain long-term care situations,
• Long-term care insurance that offers traditional coverage for long-term care needs,
• New-generation life insurance policies with living benefits,
• Asset based long-term care policies that can provide tax-free benefits.

Long-term care insurance is routinely discussed in the financial press, so we will highlight those last two options really fast.

Quelling the Long-Term Care Cost Frenzy

Living benefits on a life insurance policy may also be called life insurance riders, depending on the carrier. The riders may be already built into the policy, or they may be added on for additional premium. Check with your financial professional for details about any policy you may be considering.

With those specialized benefits, you may accelerate proceeds from your death benefit amount toward certain long-term care expenses as well as costs for other qualifying health conditions. You may have the choice to accelerate part or even all of the proceeds. Your policy will spell out in more detail about what may qualify. 

Now, let’s go back to the asset based long-term care policy option. An asset based LTC policy may offer lifetime long-term care benefits for individuals and couples. These policies are structured to offer those benefits on a tax-free basis, based on provisions within the Pension Protection Act of 2006.

This legislation, which came into effect in 2010, created new tax benefits for what are known as long-term care combination plans. Under its provisions, distributions from the cash value of a life insurance or annuity policy may be used toward long-term care needs.

As always, no financial product or strategy is right for everyone. Be sure to ask an experienced financial professional about these options, including potential pros, cons, or other factors that may affect your situation.

Need Help with Your Long-Term Care Planning? 

While long-term care may have a heavy cost impact on retirement, it’s just one part of the overall puzzle. An effective retirement strategy will assist you in ensuring you have all of your financial ducks in a row. Pre-retirement planning can help you enjoy more financial confidence, peace of mind, and overall sense of wellness.

If you need help with exploring strategies for your retirement income and financial goals, financial professionals stand ready to help you at SafeMoney.com. Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

The post Long-Term Care Planning – Why You Can’t Afford to Ignore It first appeared on SafeMoney.com.

In a March 2017 survey by Voya Financial, 69% of baby boomers said they expected to pay “$100,000 or less” for healthcare expenses in retirement. Among retirees, 66% also expected their healthcare costs to be $100,000 or below.

Retirement Healthcare Comes with a Hefty Price Tag

Those cost expectations are insightful, especially considering that even for affluent households, a 3-day stay in an out-of-network hospital can quickly exceed $50,000, as Ryan Costlin writes in a BenefitsPro article for financial advisors.

Even so, their estimates are far below what organizations like Fidelity and the Employee Benefit Research Institute project. According to Fidelity Benefits Consulting, a 65-year-old couple retiring in 2017 would need an average of $275,000 for their medical expenses.

Their $275k price tag is based on a couple with traditional Medicare insurance coverage. And it doesn’t even include the costs of dental care, nursing home care, or even other potential long-term care services.

In its research, the Employee Benefit Research Institute ran simulations that produced 100,000 observations. They accounted for the uncertainty of how long individuals might live and the unknowns of what their rates of return on investments might be.

The institute found that, assuming they had median prescription drug costs, an average couple would need $273,000 in savings to be 90% confident that they could cover healthcare expenses in retirement. This study assumed the healthcare expenses to be covered would be premiums for Medicare Parts B and D, premiums for Medigap Plan F, and out-of-pocket costs for outpatient prescription drugs.

Lifetime Healthcare Costs in Future Dollars Value

Other researchers have also run projections that account for future dollars. Research firm HealthView Services estimates that total projected lifetime healthcare premiums for a healthy 65-year-old couple retiring in 2017 would have been $321,994 in present dollars – or $485,246 in future dollars.

Adding in deductibles, copays, hearing, vision, and dental cost-sharing, total lifetime healthcare costs would go up to $404,253 in present dollars for a couple retiring in 2017. That figure would be $607,662 in future dollars.

What Would Medicare Cover?

On the face of it, the numbers might appear quite high. But while people become eligible for Medicare at age 65, the benefits don’t cover everything.

According to Fidelity, Medicare premiums for Parts B and D made up only 35% of its $275,000 estimate. The other 65% – or $206,250 in dollars and cents – would be made up of cost-sharing, internally and externally of Medicare, along with the out-of-pocket expenses for prescription drugs.

Medicare.gov gives a list of items that Parts A and B wouldn’t cover, including:

• Long-term care
• Most dental care
• Eye examinations relating to glasses prescriptions
• Dentures
• Cosmetic surgeries 
• Acupuncture  
• Hearing aids and examinations to determine fittings
• Routine foot care

You can get ideas of what may or may not be specifically covered on the Medicare.gov website.

Many Investors Underprepared for Healthcare Costs in Retirement

Despite the prospects of such high healthcare costs in retirement, many Americans don’t have a plan for how they will manage these expenses.

The NHP Foundation found that among Americans aged 50 and beyond who have tried retirement budgeting, 65% hadn’t taken account of unforeseen health-related expenses.

In its most recent healthcare research, Voya Financial reports that only 14% of Americans have run healthcare cost calculations as part of their retirement planning strategy. Previous Voya research shows over 4 in 10 Americans list healthcare as the top retirement expense over which they worry most.

Recall that Voya Financial reported that 66% of individuals estimated their health costs would be $100,000 or less – far below what projections from different research organizations have found.

All of this reinforces the prudence of having money allocated for healthcare expenses as part of an overall retirement planning strategy.  

Taking Steps to Enjoy a Financially Confident Future

While nothing is foolproof, there are steps you can take toward building a rock-solid financial plan that helps you manage potentially costly healthcare expenses. What’s more, your plan should account for other potential risks – not to mention generate the income you need to enjoy a retirement that is meaningful for you.

Some of the decisions surrounding healthcare expenses and other care-related costs in retirement include:

• Lifestyle desires and choices based on your health status and family medical history
• Your future plans with your partner and other loved ones – and how your partner’s medical history might factor into an overall retirement plan
• The timing of when you elect for Social Security benefits and sign up for Medicare
• What accounts, assets, insurance coverage, and other vehicles are at your disposal to help cover health-related expenses
• The tax consequences of taking distributions from retirement accounts, not to mention the tax implications of tapping other health cost-paying sources
• Your household income earnings and how they might affect premiums for Medicare Parts B and D
• Your retirement longevity – how long you might live and how much health-related expenses might go up over time
• The influences of other financial commitments, such as caretaking of parents, helping aging loved ones with their own health service needs, and so on

Because employers often cover up to 75% of their employees’ healthcare expenses, it’s especially important to figure out how healthcare costs will be paid for. It’s a critical question to answer considering how your household income situation will likely change in retirement.

You can Request Personal Retirement Planning Guidance

When looking over strategies such as tax-free distributions from Roth IRAs, payments from cash value life insurance, or withdrawals for qualified health expenses from an HSA, there is a lot to consider. Many retired and working-age investors have gained more confidence from guidance given by a knowledgeable financial professional.

As you explore different options, you may consider working with a financial professional for your own healthcare and retirement planning needs. Do you have the right insurance coverage to help with cost relief? Does your existing plan have the right financial resources and strategies in place for potential medical catastrophes?

Could your plan perhaps be improved? Will you have sufficient money and income-generating assets to pay for all the years you may live? Like many others, you may have a partner or spouse. Have you formulated an income and survivorship plan for when someone may outlive the other?

When you believe you could benefit from personal retirement guidance, financial professionals at SafeMoney.com can help you.

Use our “Find a Financial Professional” section to connect with someone directly. You can request a personal, no-cost initial consultation. And if you need a personal referral, call us at 877.476.9723.

The post Here’s What You May Pay for Healthcare Costs in Retirement first appeared on SafeMoney.com.

Just healthcare needs alone can impose a significant cost burden on your retirement lifestyle. In fact, research firm HealthView Services reports they’re one of the fastest-growing segments of retirement spending. Ensuring they aren’t neglected is a critical step. Otherwise they can be financially draining and greatly impact your standard of living in retirement.

What’s Going on with Healthcare?

In the 2016 Retirement Healthcare Costs Data Report, HealthView gives some startling projections for future healthcare costs:

• In 2015-2016, retirement healthcare costs are estimated to have risen 7.3%
• To show the difference from last year: Someone retiring today may have to pay $33,000 more than someone who retired a year ago due to healthcare inflation
• For persons who retired in May 2016, healthcare inflation is projected to average slightly over 5.1% for the next 20 years
• Supplemental insurance premiums are age-based, so some retirees could have an additional 4.5% increase (or greater) for supplemental plan coverage
• Therefore, some retirees may have to deal with annual inflation of 9.6% or greater

As healthcare costs continue to rise, some recent legislative changes place even more direct fiscal burden for healthcare needs on retirees. These changes include:

• The elimination of key Social Security filing strategies (like file and suspend)
• A 16% increase in monthly Medicare Part B premiums
• Zero cost-of-living adjustment for Social Security in 2016
• Adjustment in supplemental insurance coverage (Plan F coverage) starting in 2020

Lifetime Healthcare Spending and Impact on Social Security Benefits

To put all of this into perspective, consider these projections of total healthcare costs over retirement:

• For a healthy couple aged 65 retiring in 2016, total healthcare premium payments (Medicare Parts B, D, and supplemental insurance) are projected to be $288,400
• In future dollars, this amount would be $435,472
• If you include out-of-pocket costs like deductibles, hearing, vision, dental, and copays, expenses would be $377,412
• In future dollars, that would be $567,903
• A 66-year-old couple retiring in 2016 would need 57% of Social Security benefits to cover total healthcare costs
• In 10 years a 55-year-old couple would require 87% and a 45-year-old couple 117% of their benefits
• For a 45-year-old healthy couple retiring at age 65, total premium payments would be $484,103
• When out-of-pockets are factored in, a couple would be looking at total healthcare costs of $592,275 (or $1,614,712 in future dollars)

Accounting for Healthcare Costs with Income Planning

For many Americans, these projections are quite demanding. HealthView Services notes that using an “income replacement ratio” approach (or determining how much of your income needs to be replaced in retirement) would likely lead to financial windfalls.

To account for these needs, it’s important to have a suitable “time horizon” (a specified planning period for retirement saving) and appropriate vehicles to maintain suitable financial integrity. To that end, keep in mind the following:

• Having too much of your assets wrapped up in volatile assets like stocks can be costly later on
• If your portfolio takes a big hit due to a market downturn, it impacts the funds you’ll have for healthcare costs and other retirement needs
• Should you incur losses in early retirement, you’ll have to work longer to cover future income needs, or have to cut back on your standard of living
• Therefore, your portfolio should have a suitable mix of “risky” and conservative vehicles with reasonable growth potential to prepare you for future spending needs

If you’re interested in vehicles which offer principal and earnings protection, guaranteed income for life, and some growth opportunities, you may want to consider an annuity. If you’re considering an annuity, or any other product for that matter, take time to carefully research and understand all the details before committing to a purchase.

If you’re ready for personal guidance and to formulate a retirement income plan for your future, SafeMoney.com can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

The post The Growing Impact of Retirement Healthcare Costs first appeared on SafeMoney.com.