Strategies for keeping health-care bills from swallowing your retirement income.
Maximizing income, trimming costs
Adequate savings are only one part of the equation when it comes to preparing for retirement health-care costs. Maximizing Social Security payouts will increase the funds available for medical expenses.
Generally, the longer you wait to claim Social Security, the larger your monthly benefit will be. A 65-year-old married couple has more than 1,300 different claiming permutations, when you factor in the different strategies and the ages at which they can file, said Nicole Mayer, partner with RPG-Life Transition Specialists, a financial planning firm in Riverwoods, Ill.; choosing one strategy over another could yield hundreds of thousands of additional dollars over the course of a lifetime.
It’s sometimes beneficial for one or both members of a couple to file for Social Security benefits and then suspend claiming them until age 70. This allows people to claim delayed retirement credits of 8% annually (for those born in 1943 or later) plus the annual cost-of-living adjustment, Mayer said.
But a file-and-suspend strategy isn’t always the best course of action. For example, a couple with their entire retirement savings in tax-qualified accounts like a traditional 401(k) or IRA would have to pay ordinary income taxes on the withdrawals they make while they’re waiting to collect Social Security. And someone with, say, a serious cancer diagnosis that may significantly shorten his or her life span may be best off claiming at the earliest opportunity.
Reducing medical costs is another way to stretch your health-care dollars. Big regional differences in the cost of care could prompt some retirees to consider moving to a cheaper area, especially those already planning to downsize or relocate closer to relatives. Genworth’s Cost of Care Survey is one place to start in your research.
Insurance premiums also can vary from region to region. For example, Medicare supplement premiums can vary by as much as 70% from place to place, Mastrogiovanni said. The Medicare website has a plan finder where you can search plans by ZIP Code.
If this research sounds tedious, there’s a simpler way to cut down on future health-care costs: Don’t get sick. Or more realistically—since your health, of course, isn’t entirely under your control—do your best not to develop a chronic condition.
HealthView’s health-care index is based on the projections for a healthy couple. This duo does not have high blood pressure, high cholesterol, Type 2 diabetes, heart disease or cancer.
But HealthView’s software allows financial advisers to customize spending projections based on a client’s individual health status. In one example, a 65-year-old man in excellent health can expect to live to age 87 and incur $178,049 in retirement health care costs (in today’s dollars). Add high blood pressure, high cholesterol and heart disease into the mix, and he’ll live to only 85 while incurring $209,115 in retirement health-care costs.
To be sure, some poorly managed health conditions can contribute to an earlier death, reducing lifetime health expenses. But few would aspire to the diminished quality of life that comes with a badly controlled chronic illness, nor espouse one as a cost-cutting strategy.
While we may not be able to control a genetic predisposition to one malady or another, there’s plenty that we can control to help keep ourselves healthy, doctors say. Heart disease, for example, is largely preventable through diet and exercise.
Some experts have called the combo of diet and exercise the closest we’ve come to a fountain of youth, as Retire Well has reported. While exercise may not contribute much to absolute life expectancy, it can greatly extend healthy life expectancy—or the number of years spent in good health—improving quality of life and lowering health-care costs.
Mastrogiovanni gives talks to groups of financial advisers, and he likes to tell them he’s found a guaranteed way to double the value of their clients’ investments. Once he’s got their attention, he’ll say, “Tell your clients to walk an hour a day, five days a week.”