Race To Retirement
However luxurious or entertaining your
is, one day you'll face this reality: Your body's aging, and
you'll need health care.
A lot of Americans don't realize just how much they'll need.
According to a survey of 1,700 retirees and near-retirees
published in the American Journal of Law & Medicine last
month, the average person's estimate of future out-of-pocket
health spending is less than half of what it will cost.
The Long Haul
The study's authors, Allison Hoffman and Howell Jackson, say
you should expect Medicare to cover only 60% of total health care
expenses, and also anticipate a price increase of 7% a year.
That estimate doesn't include long-term care such as nursing
and home health assistance, which more than half of seniors will
Financial advisers whom IBD spoke to said many of their
clients are in a state of denial about this.
"No one wants to think about themselves in a nursing home,"
said Paul Markowich, a senior professional at Firstrust Financial
Resources. "The real prime time to plan for long-term care is age
45 to 65, but that's the prime age of people not thinking about
Likewise, Kimberly Foss, president of Empyrion Wealth
Management, says she was shocked to discover only 17 of her
firm's 80 clients own long-term care insurance, the youngest of
them age 68.
She also said it can be difficult to advise clients on whether
to buy it, since premiums have increased so much and people may
never use it.
Fortunately, other options are available. Insurers have begun
offering hybrid products combining life insurance with long-term
care insurance, which can make more sense financially.
Markowich points to products that draw money from your bank
account into a fund that can alternately be used for long-term
care, a death benefit or a 100% return of the premium. He also
said a few annuity products, "besides offering a guaranteed
income stream, pay you a bonus if you happen to have long-term
The Urban Institute figures a retiree's out-of-pocket health
expenses are $5,000 to $14,000 a year. According to Hoffman and
Jackson, three-quarters of that is divided between doctor visits
and prescription drugs, with the remainder going to dental care
and hospital visits. So 90% of seniors buy supplemental private
Markowich says a variety of Medigap plans have proliferated,
and it pays for consumers to do their homework. He points to his
parents, who recently left their plan with a reputable insurer
after a year of research persuaded them that they could get the
same benefits for only half the premium.
The planners also emphasize that you can never perfectly
predict what your expenses will be. You don't know how long
you'll live or what health problems you'll have. Then there's
ObamaCare's rollout, bringing more uncertainty.
Robert Moffit, resident health care expert at the Heritage
Foundation, says the fear of Medicare going bankrupt are, on one
level, overblown. Yet that doesn't mean everything's OK. "There's
no likelihood that it would actually go insolvent -- Congress
would raise the payroll tax before that," he said. "What Congress
might do is cut benefits to bring it into solvency."
Moffit says that by 2019, about 15% of health care providers
that currently rely on Medicare will be running in the red --
meaning they will mostly go private or go under.
His advice to seniors is basic: "Save as much money as you
possibly can, because the future of entitlements is very