Plan Wisely for Health Care Costs in Retirement

One of the biggest debates among financial planners today is whether people will spend more, or less, in retirement than they do when they’re working. It’s a question that does not have a single answer, but depends largely on your definition of leisure (front porch versus African safari, to cite two extremes). But while you can cut back on vacation plans if you’re running short on cash, it’s much harder to control your health or your health care costs in

Health care costs are a wildcard for all of us, at any age. We hope first of all to remain in good health, and then, to have the means to cover what health costs we cannot avoid.

Once we’re in retirement, health care costs become an even bigger factor because no matter how much any of us exercise or consume antioxidants, we all will at some point – whether we are 75, 85 or 95 – see our health deteriorate, often while we are living on a fixed income with limited means to cover escalating costs.

On that sobering note, here are some strategies for managing health care costs in retirement, and the benefits and downfalls of each:

Work Longer

No one can deny the benefits of taking time to rest and enjoy life at a slower pace after decades of working. Retirements has its perks and for some who have planned carefully, early retirement can help ensure an abundance of quality time.

But there’s a flip side. Working can keep our minds and in some cases our bodies engaged, while padding our bank accounts. In the same way we might try to load up on exercise or kale to delay the inevitable, loading up our savings is not a bad strategy to prepare for rising health costs down the road.

Buy Long-Term Care Insurance

If you’re like many investors, you’ve maxed out your 401(k), opened 529 plans for your children, purchased life insurance and are chipping away at your mortgage but you have yet to explore long-term care insurance.

It’s normal to overlook this product when you’re saving for and investing in so many others. But if you think you may be interested in an investment that will help you cover the cost of long-term care, don’t wait too long. Rates start to rise pretty significantly after your mid-50s and the share of people being declined coverage also increases as they age.

Consider Supplemental Insurance

It’s been well documented that Medicare insurance coverage often falls short of seniors’ actual health care expenses, which is why so many seniors purchase supplemental insurance. And it’s true that you can get coverage for every health care expense imaginable – at a price.

The trick is to find an insurance product you can afford. If you think you may be interested in supplemental insurance, try to get a sense of your budget and then take time to research your different options so you can make the most cost-effective decision.

Medical Annuities

Annuities are complex financial tools that are designed to serve as insurance policies to help guarantee a certain stream of income. As I noted in an earlier column on this topic, annuities are often poorly understood by investors and may not function as expected so they should always be purchased with caution and extensive reading of the fine print.

That said, there are all sorts of annuities and some can make sense as a piece of a larger investment strategy. If your goal is primarily to protect yourself against rising health care costs, explore medical annuities designed to preserve income to cover health care costs.

The Reverse Mortgage

I list the reverse mortgage last on this list because it should be one of your last resorts to free up income to cover health care costs in retirement. Like annuities, reverse mortgages are complex and it’s paramount to understand exactly what you are signing up for.

Typically, reverse mortgages allow you to access the equity in your home with no mortgage payments due until the time of your death. Keep in mind that you will still owe property taxes and that accumulating deferred mortgage bills can quickly add up and erode the value of your estate.

That said, in certain situations when there are limited options for accessing cash, the reverse mortgage can be a sensible way for you to unlock some of wealth while still maintaining your current quality of life.

This is making ordinary people rich

Ordinary people across America are getting insanely rich. Take Gladys Holm. She never earned more than $15,000 a year as a secretary. But by making one simple move, she was able to leave an $18 million fortune to a children’s hospital when she died. There’s many more just like her. Find out how they did it right here.

Published by Wyatt Investment Research at