As retirement age inches closer and closer, you’re probably thinking about your retirement plans. You want to make sure you have enough money to cover your expenses and spending, you want to live a balanced life in your golden years, and you want to have estate planning in place to prepare for the transfer of your assets to your heirs.
But what about long-term care insurance and health insurance in retirement?
This often overlooked aspect of financial planning can cost you BIG time in the long run. Your healthcare needs don’t vanish when you retire – if anything, you will likely see more healthcare expenses and medical bills as you age.
And what about the expenses that aren’t typically covered by health insurance? What if you need to move into a long-term care facility?
This is why it’s instrumental to incorporate long-term care planning and health insurance planning into your overall financial plans. While you’ve spent years building your wealth, achieving career success, and raising your family, you have to think about your health and well-being as you transition into retirement.
Among the top concerns for Gen X members thinking about retirement are long-term care (LTC) and health insurance.
In this guide, we will explore the key aspects of long-term care plans and health insurance in retirement, addressing the specific concerns of Gen Xers like you who are looking to retire soon. We’ll discuss the importance of planning, the options available, and how to balance these considerations with your overall retirement strategy so that you can let your life lead your money, not your money lead your life™.
Why is planning for long-term care and health insurance important?
As you enter into your retirement years, healthcare expenses can become a significant part of your financial situation. According to the Fidelity Retiree Health Care Cost Estimate, the average retired couple aged 65 may need approximately $300,000 saved to cover healthcare costs throughout retirement. This figure doesn’t even include the potential costs of long-term care, which can add even more strain to your finances if not properly planned for!
Understanding the potential financial impact of healthcare in retirement is essential for efficient retirement planning. You’ve worked your entire life to build up your nest egg for retirement, you don’t want to let an unexpected medical expense undo the decades of diligent planning that you’ve done. By integrating long-term care and health insurance into your overall retirement plan, you can help protect your assets, maintain your lifestyle, and ensure peace of mind.
Long-Term Care Insurance: what is it and why does it matter?
Long-term care is a blanket term for a range of services and support that help meet personal care needs over an extended period. This type of care is not typically covered by traditional health insurance or Medicare, making it essential for upcoming retirees to consider now.
According to the U.S. Department of Health and Human Services, about 70% of people over age 65 will require some form of long-term care services during their lifetime.
If you have a chronic disease or require personal care, you may encounter expenses from long-term care companies such as those that provide in-home care, assisted living facilities, nursing homes, or adult day care facilities.
Long-term care insurance can help you cover the expenses of long-term care options. Investing in long-term care insurance is a great way to protect your savings and give you more options in retirement.
Long-term care insurance can cover the costs of:
- In-home care: Assistance with daily activities, such as bathing, dressing, and meal preparation, provided in your home. This is often the preferred option for those who wish to age in place. (Estimated monthly cost: $5000-6000)
- Assisted living facilities: Residential communities that provide personal care services, social activities, and some healthcare support. (Estimated monthly cost: $5000+)
- Nursing homes: Facilities that offer a higher level of care, including medical and nursing services, for individuals who require constant supervision. (Estimated monthly cost: $8000-10000)
- Adult day care services: Programs that provide care and companionship for seniors during the day, allowing caregivers to work or take a break. (Estimated monthly cost: ~$2000)
When paid out of pocket, these costs can add up quickly, so it’s important to have a plan in place to help you cover these expenses in retirement. You’ve worked hard to accumulate your wealth, you don’t want it depleted by unforeseen long-term care expenses.
About Long-Term Care Health Plans
Qualifying for long-term care insurance (LTCI) typically depends on your age, health, and overall medical history. Insurance companies evaluate these factors during the underwriting process to assess your eligibility.
Generally, the younger and healthier you are, the more likely you are to qualify for coverage and get favorable terms. Pre-existing conditions, like diabetes or heart disease, could end up resulting in higher premiums or even disqualifying you from coverage. Therefore, you want to apply while you’re still in good health to improve your chances of securing a policy.
The best time to start shopping for LTCI is typically in your 50s to early 60s. At this stage, you’re more likely to be in good health, which can result in lower premiums and a broader range of coverage options. Waiting until later in life can lead to higher costs or difficulty qualifying for a policy due to health changes. Starting early also allows you to lock in lower rates and ensures you’re covered if the need for long-term care arises unexpectedly.
Though many believe that long-term care insurance is too expensive to even think about, the cost of LTCI varies widely based on factors such as your age, health, the type of coverage, and the length of the benefit period. On average, premiums for a healthy 55-year-old couple might range from $2,000 to $4,000 per year for a standard policy. When comparing this to the cost of the long-term care services you may need, it becomes a much more attractive option.
It’s important to balance the cost of premiums with your financial situation and future healthcare needs, so you want to work with your financial planner to make sure the policy you choose aligns with your overall retirement plan.
To learn more how you can align your finances with your personal goals, and read more content like this, click here.
Health Insurance in Retirement: What Are Your Options?
Health insurance is another often overlooked component of your retirement plan. As you get closer to your retirement years, you need to be aware of the different options available to you to ensure that you have the right amount of health coverage after retirement.
Health insurance for retired seniors can be complex, typically involving a mix of options.
Medicare
Medicare is the federal health insurance program for people aged 65 and older. While it provides essential coverage, it doesn’t cover everything (particularly long-term care). Medicare is made up of several parts:
- Part A (Hospital Insurance): Covers inpatient hospital care, skilled nursing facility care, hospice care, and some home health care.
- Part B (Medical Insurance): Covers outpatient care, doctor visits, preventive services, and some home health care.
- Part C (Medicare Advantage): An alternative to the original Medicare that offers all-in-one plans, including Part A, Part B, and often Part D (prescription drug coverage). These plans are offered by private insurance companies and may include additional benefits, such as vision, dental, and hearing.
- Part D (Prescription Drug Coverage): Covers prescription medications.
While Medicare covers a significant portion of healthcare expenses, there are gaps that retirees need to be aware of, such as deductibles, co-pays, and coinsurance. Additionally, Medicare does not cover most long-term care services, which is why it’s so important to plan for long-term care in conjunction with health care planning.
Medigap
Medigap, or Medicare Supplement Insurance, is a health insurance for retired seniors, sold by private companies, designed to help cover the gaps in Medicare. This insurance can help pay for out-of-pocket costs, such as deductibles and co-pays. It’s important to note that you must have Medicare Part A and Part B to qualify, as Medigap is intended to supplement Original Medicare expenses.
There are different Medigap plans available, and each plan offers various levels of coverage. Working with your financial planner to choose the right Medigap plan can provide added financial security and peace of mind ahead of your retirement.
Employer-Sponsored Retiree Health Insurance
Some Gen Xers may have access to employer-sponsored retiree health insurance, which can provide additional coverage beyond Medicare. However, this option is becoming less common as companies shift away from offering retiree benefits. If you do have access to this type of insurance, it’s essential to understand the coverage details and how it fits into your overall retirement healthcare plan.
Health Savings Accounts (HSAs)
If you’ve been contributing to a Health Savings Account (HSA) during your working years, it can be a valuable resource in retirement. HSAs offer triple tax benefits since contributions are tax-deductible, its earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. In retirement, you can use your HSA to pay for out-of-pocket healthcare costs and long-term care expenses.
One of the best advantages of an HSA is that you can spend the money however you want once you reach the age of 65 (though it will be considered taxable income if not used for qualifying purposes), so if you contribute too much to an HSA, you can still withdraw the funds.
Balancing Healthcare Costs with Retirement Goals
Balancing healthcare costs with other retirement goals can be a unique challenge. You’ve worked hard for your entire life to build your wealth, and now you have to switch your focus to making sure you can enjoy the fruits of your labor – without unexpected healthcare expenses derailing your plans.
One of the most effective ways to balance healthcare costs with your retirement goals is to work closely with a financial planner. A financial planner can help you assess your current financial situation, estimate future healthcare costs, evaluate insurance options, integrate your healthcare costs into your retirement plan, explore tax-efficient strategies, and plan for the unexpected.
By working with your financial planner, you can relieve some of the stress that comes with the unknown.
Maintaining a Balanced Life in Retirement
While planning for healthcare costs is essential, it’s also important to remember that retirement is a time to enjoy the life you’ve built. Maintaining a balanced life in retirement means taking care of your health while also pursuing your passions, spending time with loved ones, and exploring new opportunities.
Consider how your healthcare plan fits into your broader retirement vision. Do you want to travel extensively? Spend more time with family? Volunteer or start a new hobby? You want to work with your financial planner to create a plan that supports both your short-term and long-term goals, ensuring that you can live a fulfilling and balanced life in retirement.
Bottom Line
As a Gen X member, you’re in a unique position to shape your retirement years proactively. Balancing your plans for long-term care and health insurance with your overall life goals is key to protecting both your finances and your future happiness. You’ve worked hard to build a life you love – now is the time to see your retirement reflect those efforts.
By working with your trusted financial planner, you can create a personalized plan that balances healthcare needs with your financial goals and lifestyle aspirations. This can allow you to navigate the complexities of retirement planning with confidence and create the retirement you’ve envisioned.
If you want to work with a CERTIFIED FINANCIAL PLANNER™ to create a retirement plan that covers all of your financial goals, we’d love to set up a complimentary consultation to discuss your needs and see if we’re the best fit to help you!
Long-term care and health insurance are critical components of a secure retirement, but they require careful planning and consideration. By understanding your options and working with a financial planner, you can create a comprehensive plan that addresses your healthcare needs while allowing you to enjoy the retirement lifestyle you’ve worked so hard to achieve.
