In addition to advising our clients about tax preparation and tax planning, we believe it is very important that they address all facets of their financial situation, including planning for retirement.
The greatest fear that most retirees or those nearing retirement age have is running out of retirement funds before their demise. The Institute for Retirement Planning (“IRI”) posted an article on its website stating that “planning for later-life health care costs is essential for a secure retirement—but figuring out what to do about them is a lot less clear. Out-of-pocket health expenses are not only a big-ticket item but are not predictable or controllable. No wonder few of us build financial strategies for future health needs . . . .” According to Merrill Lynch and Age Wave, “Less than one out of six pre-retirees has ever attempted to estimate how much money they might need for health care and long-term care in retirement.” Retirees in good health will likely outlive those who are not in good health by five to six years.
Thus it is logical that the longer one lives, healthy retirees will pay more in health care costs than their less healthy counterparts and will thus have a greater probability of running out of assets and spending their Social Security on health care costs.
What can retirees do to plan for health care costs in the future?
We recently met with a retiree and asked whether he had made any provisions for long-term care (“LTC”), he responded that he had not. Since we realize that many retirees no not like to purchase LTC insurance policies, we suggested that he may wish to consider certain life insurance and annuity products that provide LTC coverage, and if the policies are not used for LTC, the policies contain a return of premium dollars paid provision. The client said that he was not interested in insurance or annuity products. Many financial advisors are now recommending a retirement income approach using either single premium immediate annuities or a deferred income annuity in combination with systematic withdrawals to provide a healthy individual with a larger portfolio balance at life expectancy age. In our July 22, 2014 post, we had discussed the new IRS regulations regarding qualified longevity annuity contracts as the federal government is recognizing the need for individuals to better plan for their retirement needs.
Another planning opportunity is to realize that your health care needs will increase later in life and not to enroll in the least expensive Medicare Advantage program you can find today simply because you are in good health today. You must plan for the future and work with a Medicare specialist. Should you develop a serious health problem in the future, which is almost certain, you may find that your co-pays will be quite significant and it will be difficult to find a less expensive health care provider because of your pre-existing medical conditions.
If you want to learn more retirement planning, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.