Three Steps to Develop YOUR BEST LONG-TERM HEALTH PLAN
by Jill Ciccarelli Rapps, CFP®
Walt and Doris are a charming couple in their early sixties who came in to assess whether they were ready for Walt to retire. They wanted to pay off the house, travel a little and spoil their grandchildren. Not a bad plan overall.
It wasn’t long before they found a serious shortfall in their financial plan: long-term healthcare. Both Walt and Doris are in excellent health, but Walt’s parents died of heart disease in their seventies, and while Doris’ parents are in their late eighties, they have spent many years in assisted living facilities. Now, Walt and Doris might both live long lives with limited health expenses covered totally by Medicare, but they need to be prepared that one or both of them could have significant healthcare costs over the next twenty years.
While nobody likes to think about these scenarios, your retirement plan is not complete without some accommodation for long-term healthcare. The difficult part is guessing what kinds of care you could possibly need several years out that would not be covered by your insurance or Medicare. We have had clients in their sixties who needed long-term care, older clients whose health took a turn suddenly, and others who lived vibrant lives into their nineties. For a couple like Walt and Doris, their costs could range anywhere from $202,415 to $947,188 a piece when they may need long term care.
To be truly prepared for retirement, you need to develop your personal healthcare strategy. Part of it is staying fit and active, but the other part is ensuring that you have adequate assets in place to cover whatever unforeseen costs may arise. It’s never too early to put a strategy in place to ensure that you and your spouse receive the best care you can when you need it.
People who don’t take three essential simple steps may be setting themselves up for a very bumpy road through retirement.
Step 1 – Be Aware. Healthcare will likely be your largest expense in retirement, second only to your home, so it’s critical that you have a plan. It is no longer safe to assume a large insurer – or the federal government – will cover most of the cost going forward. We need to be prepared to shoulder a larger financial responsibility for our own care. The average premium for a couple in their fifties – not including proactive care – can exceed $15,000 a year, not counting deductibles and out-of-pocket expenses.
Step 2 – Educate. It’s important to understand what Medicare covers at age 65. Part A – “hospital insurance” – is involuntary and covers inpatient hospitalization, skilled nursing facilities, home health care, and hospice. Part B – “medical insurance” – covers doctors and providers, preventive benefits, durable medical equipment and outpatient services. Part B is voluntary and premiums are based on your modified adjusted income. Typically, you will also have a deductible and a 20% coinsurance on some services. “Medigap” and prescription supplemental insurance cover most gaps that Medicare A and B will not cover. Walt’s brother Bruce is 65 and he and his wife pay $7,581 per year for their premiums and supplements.
Step 3 – Assess. We use current cost of care, projected lifespan, and inflation to estimate an average annual cost over the rest of your and your spouse’s lifetime for out-of-pocket expenses and the projected cost of what long term care may cost on top of this. In Walt and Doris’ case, their average out-of-pocket cost of care may be $21,062 a year. They needed to adjust their investment portfolio to prepare for that extra cost. Now, our assessment did not include things that Medicare doesn’t cover completely, like pro-active physical therapy, chiropractic care, personal trainer services, and alternative care options, but these may be things you would want to consider as well. Most importantly the above figure does not include long term health care which Medicare does not cover.
The Official U.S. government Medicare Handbook, Medicare & You, 2013.
Medicare Part D premiums are on average about $400 per year (varies by
State) and are subject to the plan a person selects. Medigap Insurance can vary by
carrier and state. The average plan in 2011 was $178 per person per month for
an annual cost of about $2,136. Fidelity Consulting Services, 2010. Based on a
hypothetical couple retiring in 2010, 65 years or older with average (82 male, 85
female) and longer (92 male, 94 female) life expectancies. Estimates are calculated
for “average” retirees, but may be more or less depending on actual health status,
area, and longevity.
Jill Ciccarelli Rapps
Jill Ciccarelli Rapps, is a certified financial planner and
a trained life coach and is a Partner of Ciccarelli Advisory
Services Inc., a Family Focused Wealth Management Firm
in Florida and New York.
Ciccarelli Advisory Services, Inc. is located at 9601
Tamiami Trail North, Naples, FL (239.262.6577)
Investment advisory services offered through Ciccarelli
Advisory Services, Inc., a registered investment adviser
independent of FSC Securities Corporation. Securities and
additional investment advisory services offered through
FSC Securities Corporation, member FINRA/SIPC and a
registered investment adviser.
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