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Ways to Keep Health Costs From Cutting Into Retirement Savings

6 practical suggestions from financial advisers

By Erin Flynn Jay

When steep medical costs cut into your retirement savings, the results can be staggering and painful.

A couple looks over bills
Credit: Adobe Stock

They were for the mother of Bradford Daniel Creger, chief economist & lead wealth strategist at Total Financial Resource Group in Glendale, Calif. Creger’s dad was a successful stockbroker who was forced to retire at 51, due to Parkinson’s disease. His mom slowly lost everything caring for her husband.

If someone had advised his mother on how to solidify her finances during his dad’s illness, Creger says, she would have had a very different life. “She should have been forced to make some difficult (financial) decisions that would have changed her immediate situation, but her tragedy could have been easily avoided,” Creger notes.

"If you aren’t protected with a long-term care policy before you get sick, the cost to get one after is often prohibitively expensive.”

Here are six ways you might be able to prevent steep health costs from endangering your retirement and financial future:

1. If you’re facing rising health care costs, and even if you aren’t yet, consult a financial professional to run projections about your savings and future retirement income. James Enriquez, a Certified Financial Planner and financial adviser for Ameriprise in McAllen, Texas, says he has found that many people haven’t thought enough about how to prepare for the possibility of an unexpected medical event.

“After a thorough needs analysis is performed, some folks find there is a low likelihood that the unexpected health care event will lessen the amount they pass on to their beneficiaries without impacting their current lifestyles. Others find they will need to adjust their spending in retirement to account for the unexpected expense,” he says.

2. Review your health insurance options if medical issues are expected to continue. If you are employed and anticipate incurring health or prescription drug expenses next year, you may want to switch to a plan requiring smaller out-of-pocket costs. But the premiums will likely be higher.

3. Look into buying a long-term care insurance policy if you’re healthy and in your 50s or 60s. It could protect you against enormous costs for home health care or care in an assisted living facility or nursing home.

“If you aren’t protected with a long-term care policy before you get sick, the cost to get one after (when the insurer will perceive you to be higher risk) is often prohibitively expensive,” says Matt Carey, co-founder and CEO of the financial services firm Blueprint Income. “The younger and healthier you buy a policy, the lower the premium for the same amount of coverage.”


But, he adds, underpricing has led many long-term care insurers to exit the business or raise rates for existing and new customers.

4. Consider buying a lifetime income annuity. The potential for medical costs to spike is a good reason to consider buying one of these with a portion of your retirement funds — not all your retirement money.

Carey says retirees should keep about 70% of their savings accessible.

With a lifetime income annuity, you give the insurance company a lump sum and are then guaranteed predetermined payments for the rest of your life.

“Annuities are a great way to provide steady, lifelong income for things like housing, food and transportation. In general, however, because health care costs are quite variable, you’ll want to keep money accessible for health care ‘shocks’ that might come with an illness or procedure that involves a sizable out-of-pocket expense,” Carey advises.

5. Downsize your home. Enriquez says it may make sense for a retired couple with no family nearby to downsize, reducing their monthly housing expenses and possibly freeing up some cash from the sale of their home.

6. Tap a cash-value life insurance policy if you have one. “Utilizing possible cash value from a life insurance policy, which may have never been intended to have been used during the policyholder’s life, could help address a health care concern,” says Enriquez.

Photograph of Erin Flynn Jay
Erin Flynn Jay is a journalist based in Philadelphia. Recent national writing includes First for Women, Woman's World Magazine, and Bar & Restaurant. Read More
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