Retirement Health Costs: Planning For The Wild Card

Be honest, now: When you do your retirement planning, do you factor in potential health care costs and long-term care costs? Odds are, you don’t, figuring there’s no way to know what they might be — not to mention the subject is depressing and the numbers could be scary.

But ignoring what Ken Dychtwald, CEO of the aging consultancy Age Wave, calls “the retirement wild card” could be the biggest retirement planning mistake you’ll ever make. And you actually can plan for health and long-term care costs; I’ll give you eight ways shortly.

Age Wave and Merrill Lynch today released a fascinating, if disconcerting report  (Health and Retirement: Planning for the Great Unknown) based on a comprehensive survey of 3,303 adults. They call health care expenses “the missing link in retirement planning.”

The Survey Says…

Five of the survey’s striking findings:

Health care expenses are the top financial concern for retirement among Americans age 50+, regardless of their wealth level
Only 15% of pre-retirees have tried estimating how much money they might need for health care and long-term care in retirement
Just 7% of those 55 to 64 feel very knowledgeable about Medicare options; a mere 19% of Medicare recipients do
71% of couples age 50+ haven’t discussed how much they need to save to pay for health care during retirement
Health problems were the No. 1 reason people retired earlier than expected
Nationwide Insurance has also polled boomers about retirement health care costs. “The one word that comes up is ‘terrified,’” says Kevin McGarry, director of the Nationwide Financial Retirement Institute.

The danger of not penciling out health- and long-term care costs, and taking steps to pay for them, isn’t just that you might lack the money. “You could be putting a burden on your family,” says David Tyrie, head of retirement and personal wealth solutions at Bank of America Merrill Lynch. “That weighs very heavily on the boomer generation.”

The 4 Boomer HealthStyles

The Merrill Lynch/Age Wave study says boomers fall into one of four “HealthStyles”: Challenged and Concerned (32% and mostly women), who often have chronic conditions; Healthy and Proactive (29% and mostly women); Course-Correcting and Motivated (29% and mostly women), who have had a serious illness or diagnosis and Lucky but Lax (10% and mostly men), who are relatively healthy.

“Those who have invested in their own health do better, those who’ve had discussions with their spouses are less worried and those who’ve put financial actions into place feel more secure,” says Dychtwald.

8 Ways to Prepare for Retirement Health Costs

OK, now that you have a rough idea of the costs you incur and know which camp you fall into, how should you prepare if retirement is nearing?

1. Stay healthy or get healthy. 
You may not be able to reduce your risk of Alzheimer’s says Tyrie, but you can take care of your health, which will keep your costs down.

2. Estimate your potential out-of-pocket health- and long-term care costs. Only 12% of people 50 to 69 have researched the cost of assisted living or skilled nursing, according to a new survey commissioned by the RiverWoods Continuing Care Retirement Community.

If you work for an employer, ask HR whether if there are retiree health benefits and, if so, what’s covered, how much the insurance costs and long the benefits would last.

To run your health care and long term care expense numbers, I’d recommend seeking help from a financial adviser, a Medicare specialist or doing some internet research.

For Medicare, try the easy Medicare QuickCheck electronic tool on National Council on Aging’s site, My Medicare Matters. It spits out a report to help you make wise Medicare plan decisions and get personal assistance.

You can get a rough estimate of how much your health costs might be in the year you turn 65 at the free site of HealthView Services. You enter your age, sex and whether you have a chronic illness and voila! (I did this and HealthView says I should figure on $7,668 to $13,667). For $500, HealthView will give you a detailed personal estimate with projections for health care and long-term care costs.

Financial advisers are becoming more helpful on the health care cost estimate front, as they grow more holistic and less investment-centric. As I blogged on Next Avenue, Merrill Lynch hired a financial gerontologist who’s working with the firm’s advisers to aid clients. Financial planners at many firms are increasingly using software to let clients get an idea of what they might pay and then working with them to find the money. Advisers who work with Nationwide, for instance, can use the company’s Personal Health Care Assessment tool, which includes health and long-term care costs.

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http://www.forbes.com/sites/nextavenue/2014/09/12/retirement-health-costs-planning-for-the-wild-card/