Three ways to mitigate health-care costs in retirement

Three ways to mitigate health-care costs in retirement

Housing may represent the largest share of household expenses in retirement, but it’s not the expense causing the most concern among savers.
More than one-quarter of adults surveyed in a new poll cite health-care expenses as their top financial worry about retirement. The 2015 Bankrate poll found that one-third of people over 50 were worried about the burden of expensive illnesses or injuries. More than a quarter of younger savers — ages 30-49 — also shared the same concerns.

Investors may choose to alleviate their concerns by finding ways to include health-care costs in their financial plan. Like other expenses in retirement, planning for health care can make a difference.
Here are three strategies individuals may explore now to help mitigate the impact of rising health-care costs in the future.

1. Be tax smart

When planning for the future, maximizing the potential of tax-smart financial planning is an important element. Tax efficiency may lessen the impact of taxes and help ensure that retirement assets will last longer. Managing income level may also help to avoid larger Medicare premiums.
Investors may also want to consider using Roth IRA strategies to create tax-free income in retirement. Also, establishing a Health Savings Account (HSA) while still working can help investors take advantage of the tax benefit now and save more for the future.

2. Earmark some future income for health care

Factor in health-care expenses when planning for income in retirement. As investors establish a sustainable withdrawal rate for retirement, the impact of rising health-care costs should be a priority consideration. Part of the planning should include matching up income streams, including guaranteed income, to fund recurring health-care expenses such as insurance premiums. Investors may also consider maintaining an emergency health-savings fund for non-recurring health expenses. Also, delaying the claim for Social Security can result in a larger monthly benefit.

3. Consider the possibility of long-term care

Statistics indicate that many Americans will need some long-term care in retirement, either in a nursing facility or at home. These services may not be entirely covered by Medicare and can be costly, resulting in out-of-pocket expenses that can quickly erode retirement savings. There are insurance-related options, such as long-term care insurance, that can be explored in advance of retirement. The use of advanced estate planning strategies, such as trusts, may also help protect assets from being used to cover long-term care. A professional advisor can explain the pros and cons of long-term care insurance, trusts, and other advanced strategies to help you protect your savings for the future, and avoid spending it all on health care.

Planning ahead can help individuals prepare for the unexpected. By thinking about health costs now, investors can take advantages of insurance options, asset protection strategies, and other tax-smart ideas to help them create a comprehensive retirement plan that will cover their expenses in the future.


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