• 4-Minute Article
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  • Mar 15, 2019

5 Healthcare Factors to Discuss with Your Financial Advisor

Considering healthcare costs and risks in overall retirement planning helps ensure a safety net is there when you need it.

Sharing health information with a trusted financial advisor may seem uncomfortable or unnecessary. But a candid conversation is important, because it may uncover valuable opportunities to strengthen future financial security. After all, it’s difficult to plan for a 30- or 40-year retirement without considering the impact of healthcare costs.

Research shows that two-thirds of pre-retirees never discuss health issues with their financial advisor.1 This oversight occurs even though nearly 80% of older adults suffer from at least one chronic condition (such as diabetes or arthritis).2

To prepare successfully, take steps to make healthcare planning? a crucial part of overall retirement planning. Include these five discussion points in the next conversation with your financial advisor.

Budgeting for Future Health Expenses

Current health status and medications, potential health risk factors, and expected longevity are key factors in crafting a realistic retirement plan. Understanding health risks can also help advisors customize their financial guidance, for example, by making sure your investment strategy will provide the liquidity or long-term growth needed to cover the potential cost of care.

Most 65-year-old couples covered by Medicare, for instance, will need as much as $273,000 to have a good chance of covering their healthcare expenses throughout retirement, including Medicare Parts B (doctor visits) and D (prescription drugs) premiums, Medigap premiums, and out-of-pocket drug costs.3

Accounting for Costs Medicare Will and Won’t Cover

Medicare Parts A (hospital) and B participants are typically responsible for premium payments, deductibles, and copays. Plus, Parts A and B generally do not cover:


Funding a Health Savings Account (HSA)

HSAs can be funded until age 65, when Medicare kicks in. These accounts boast triple tax advantages: contributions are tax-deductible (or pre-tax if made through an employer); money grows tax-deferred in the account; and funds can be used tax-free for out-of-pocket medical expenses at any age. Those costs include Medicare premiums, deductibles, copayments, dental and vision expenses, and possibly a portion of premiums for traditional, standalone long-term care insurance.

Withdrawals are tax-free as long as the money is used for qualified medical expenses. If HSA funds are used for purposes other than qualified medical expenses, income tax plus a 20% penalty will be due for those under age 65.

Building up their HSA was a key strategy for Bob and Debbie West4 of Ellicott City, Md., during their pre-retirement years. When estimating retirement expenses, they predicted they’d need more than $250,000 for healthcare. "The HSA was an additional benefit" toward that goal, says Bob, who retired six years ago. "Not only did the contributions make a great deduction at tax time, I now have a nest egg to use for my out-of-pocket medical and dental expenses in retirement."

Putting Long-Term Care Safety Nets in Place

Long-term care (LTC) costs can quickly reduce even the healthiest retirement savings. The average annual cost of a private room in a nursing facility, for example, could be more than $92,000 per year.5

Traditional LTC insurance can ease the pain of those high costs substantially; however, rising premium costs and the use-it-or-lose-it nature of the coverage have kept many from purchasing policies. This has led insurers to develop new options, including hybrid policies (life insurance policies that include long-term care coverage) that can ease the risk of paying premiums for a policy that’s never used – if you never need long-term care, your loved ones will receive the death benefit in full when you pass away.6

Establishing an Estate Plan to Protect Your Wishes

Estate planning involves more than just a will, especially when health issues become part of the picture. For someone with a chronic condition, for example, putting key documents in order provides peace of mind and gives guidance to family. These legal safeguards may include a:

  • Living will or advance directive, which is a document that spells out medical treatment preferences and end-of-life care
  • Healthcare proxy or agent – a trusted individual you designate to make medical decisions for you if you can’t
  • Power of attorney – a person you authorize to manage your financial affairs if you’re unable to do so

A financial professional can recommend an estate attorney to help prepare these documents to your unique circumstances.

No matter what your health status is today, it’s likely you can expect some medical expenses in retirement. That’s why it’s important to have a frank talk with your financial advisor. Together, you can develop a plan to incorporate health cost planning into your overall retirement plan. The goal? Creating a safety net to accommodate your future medical needs.