Plan for Future Health Expenses Now

These tips can help you start preparing for the costs associated with unexpected disabilities, illnesses and other major health issues during retirement.

Woman Caring for an Older Patient

by NEA Member Benefits

Key takeaways

  • Disability causes more than 50% of all mortgage foreclosures and more than 50% of all personal bankruptcies.1
  • It’s estimated that a 65-year-old couple today will face out-of-pocket health care costs of $220,000 over a 17-20 year retirement.
  • Retirees today spend more on health care than on food. And health care costs are expected to rise at about double the inflation rate.

We would all love to be healthy, active and independent right up to the very end. But statistically, that’s not going to happen for many of us. Part of your financial planning and preparedness for retirement should include contingencies for the potentially debilitating costs associated with unexpected disabilities, illnesses and other major health issues.

Retirees worry about health care

Over the past three years, AARP, Wells Fargo/Gallup, and Merrill Lynch all conducted surveys about retirement concerns among adults age 45 and older. The findings were remarkably similar. Potential health problems and the cost of health care are the biggest worries for those entering retirement.

This dovetails into the second most common concern and that is the ability to maintain independence and avoid outliving savings. The AARP study found that 59% of Americans are concerned about saving enough for the future, particularly with the realization that health care costs arising from unexpected medical issues could become a major drain on their savings.

Supercharge your savings

Your first planning priority is to make sure you have sufficient savings to supplement pension benefits throughout a 20-30 year retirement. When calculating how much you need to save, factor in generally rising health care costs and include the possibility of dealing with a major health problem. Contemplating worst-case scenarios may be psychologically unpleasant, but it can make good financial sense. If retirement is still several years away, concentrate on saving more in your 403(b) plan and consider making catch-up contributions to accelerate account growth.

At the same time you’re upping those retirement account contributions, gradually build an emergency cash fund equivalent to about 6-12 months of income. This fund can help you weather the costs of short-term illnesses and injuries without having to dip into your retirement savings at an inopportune time.

Insurance protection adds peace of mind

Aside from savings, your umbrella protection against unexpected health events is going to be insurance coverage. As an NEA member, you have access to various group plans in your pre-retirement years and after age 65. Here are details on each program.

For pre-retirees

NEA Income Protection Insurance Plan: This disability plan can help replace part of your paycheck if you can’t work, helping to protect you and your family. More than 30% of Americans will be kept off the job by illness or injury for 90 days or more. According to the Centers for Disease Control and Prevention, 25.9% of females between the age of 45 and 64 consider themselves disabled.

NEA Long-Term Care Program: Even though you might think of long-term care as something only the very elderly require, a major illness, accident or disability can happen to anyone at any age. By the time you turn 65, you’re facing a 70% chance of needing long-term care at some point in your life. Long-term care (LTC) insurance premiums generally are lower if you purchase the coverage at a younger age. So it may make sense to buy LTC coverage in your 50s to lock in lower premiums. Think LTC insurance is a luxury? The cost of a single year of nursing home care can run a lot more than 30 years worth of LTC premiums. Keep in mind that Medicare and other types of health insurance do not cover long-term care.

For NEA members 65 and over

NEA Retiree Health Program: Medicare Part A covers only about 50-60% of health care costs, so most retirees purchase a Medicare supplement plan to cover the balance. The NEA Retiree Health Program, which allows you the freedom to choose your own doctors and hospitals, offers group rates that average at least 15% below the nation’s most popular Medicare supplement plans. 

The bottom line

You don’t know what the future holds, so be flexible as you build your income and insurance strategies. Discuss plans for dealing with illness, injury, disability and other life-altering events with your spouse, domestic partner and other family members. If you just assume everything will be rosy right up to the end of your life, you may put your family at risk of shouldering large health care costs. But if planning for the worst case causes you to give up everything that makes you happy, that may not make sense either. Try to find the balance that provides the peace of mind you and your loved ones need—now and into the future. A financial advisor can provide objective views and help guide you in your decisions.

1 Source: “Preparing for Disability” Council for Disability Awareness 2013.

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