These days people are living longer than ever – and we’re all for that! But living longer does come with a tricky problem: The longer you live, the more likely you are to require extensive (and expensive) health care services. That means you’re incurring the highest healthcare costs during the part of your life when you’re not working – so you’d better have excellent insurance, good retirement income or both.
No one who plans to live long can escape the necessity of at least preparing for health care costs during their golden years. Even if you never need anything besides prescription medication, it will take a serious bite out of your retirement income.
How to prepare?
Obviously, Medicare makes a big difference, and the addition of Medicare Part D a few years ago expands coverage of prescription drugs, just as the emergence of generics has reduced the cost somewhat. But planning for what could be decades of escalating healthcare costs can’t assume the best-case scenario. At the same time, it’s hard to do long-term planning when no one knows what the law is going to be. If the health care reform passed in 2010 takes full effect as scheduled in 2014, the overall health insurance pool will look quite a bit different, but Medicare is set to remain largely the same – although money has been diverted from Medicare to pay for expanded coverage. It’s hard to predict the effect of that.
If this year’s election results in the law’s repeal, it’s difficult to say what will come in its place. One plan would leave Medicare unchanged for those 55 and over but go to subsidized insurance premiums for many of those who will be eligible in future years.
How do you plan when you don’t know what’s going to happen? The best approach is to plan for what you do know. It’s reasonable to assume that a percentage of your retirement income will be eaten up by healthcare costs, including nursing home costs in later years. So as you budget for your living expenses during retirement, put aside a reasonable percentage to keep available for health care expenses. If you don’t need to spend all of it – great. Roll it over. But never stop putting aside that percentage, because you have no idea what will happen with your health as you age, so you can never assume that this year’s light health care spending will be followed by more of the same.
Planning for the worst case scenario is the best approach. Wherever the law goes, at best you stay prepared.
To get more information on planning for your retirement, contact First Financial’s Investment and Retirement Center at 732.312.1500.
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