Retirement Health Care Fund

November 10th, 2008  |  Published in Retirement  |  1 Comment

WSJ published a story late August, prior to the latest stock market collapse, for near-retirees and the first item on the list was to establish a “health-care fund.” If you are still considering retirement (some have decided to defer retirement for a year or two to make up for the retirement fund shortfall, this is very valuable advice you should pay close attention to.

You’re probably familiar with emergency funds – the pot of money you set aside to cover short term emergencies like unexpected medical bills, car breakdowns, home repairs, etc. The health-care fund is an extension of that concept but applicable to what will likely be one of the biggest challenges of your entire retirement – your health. The idea behind the fund is that you should have enough in that fund to pay for all your medical needs from monthly health insurance premiums to co-pays to any potential medical problems you may encounter.

Another important piece of advice is to get a physical to learn whether you are an at-risk individual. You don’t want to cancel your current insurance only to find out you can’t get insurance!

Ready to Retire? First Plan Your Exit Strategy [The Wall Street Journal]

High Deductible Health Plan + Health Savings Account Plan

September 10th, 2008  |  Published in Insurance  |  Comments Off on High Deductible Health Plan + Health Savings Account Plan

One of the biggest concerns for retirees is medical costs. As we live longer, the need for health insurance grows and the cost of that insurance will also increase. It’s simple math, older people are simply more expensive to insure. Since you’ll be living on a fixed income, the increasing costs of your insurance will introduce longevity risk, the risk that you’ll outlive what your assets can fund.

Suze Orman proposes a plan that might work to mitigate this risk – combining a high deductible health plan and a health savings account. A High Deductible Health Plan (HDHP) is one in which you are willing to accept a higher deductible in return for lower recurring premiums. In 2009, the minimum deductible is $1,150 for individuals and $2,300 for family coverage. HDHP will also have higher annual out of pocket limits too. You couple this with a health savings account, which is a tax free investment account, to maximize your savings. You pay the deductibles of the HDHP with the earnings from the HSA.

It’s not a perfect solution but certainly one to investigate.

The Health Scare Lurking in Your Retirement Plan [Yahoo! Finance]

Retirement Medical Savings Required: $376,000

June 11th, 2008  |  Published in Medical, Retirement  |  Comments Off on Retirement Medical Savings Required: $376,000

$376,000 is the highest amount recommended by the Employee Benefit Research Institute in a report released yesterday. What the EBRI, which is a D.C.-based public policy group, recommends for a couple, with premiums not subsidized by their former employer, have approximately $376,000 if they are not willing to take on any risk (meaning they don’t want to save less and risk being underfunded). So, while the $376,000 does appear scary, at least we know that’s the recommended maximum.

According to a report released Tuesday, the retirement health tab can run between $64,000 and $122,000 for a 65-year-old man whose former employer pays his insurance premiums, and between $86,000 and $140,000 for a woman of the same age. For retirees who don’t have access to an employer-offered plan, the costs – mostly for prescription drugs – run even higher [Source: CNN Money].

The table in the article outlines most scenarios (permutations of the premium covered or subsidized or not at all subsidized by employer, the age and gender of the retiree) with the lowest dollar amount being a 65-year old man willing to take on a high level of risk and who has premiums covered by the former employer ($64,000).

Here’s another interesting stat, according to the Metropolitan Life Insurance Co. (that’s MetLife), the average cost of a private room in a nursing home is $77,745 a year. The price at an assisted living community is $35,628 a year.