4 steps for planning retirement health care costs


By David Pitt

There’s a tremendous lack of knowledge when it comes to planning for health care costs in retirement.

A new survey by Sun Life Financial found that 92 percent of workers said they don’t know how much their health care will cost in retirement or vastly underestimate the amount.

Forty percent said they have “no idea” what their health care costs are likely to be in retirement. Only 8 percent were in the correct ballpark estimating costs of $200,000 or more. Another 51 percent estimated less than $200,000 would be needed.

In fact, a 65-year-old couple retiring this year will need $230,000, on average, to cover medical expenses in retirement, according to a Fidelity Investments study released in March. That doesn’t even include most dental services, or long-term care, such as nursing home expenses.

The difficulty in estimating what is needed may be contributing to a sense of futility about what to do. The Sun Life survey shows 74 percent of workers lack specific plans to cover retirement health care costs. Even among those aged 60 to 66 and closest to typical retirement age, only 40 percent include it in their budget. What’s more, only 30 percent of workers between age 50 and 59 are making plans. The survey polled more than 1,500 workers in March.

“People are overwhelmed,” said Janet Whitehouse, general manager for Sun Life Financial’s individual life insurance division. She said the ongoing shift of responsibility for workers to provide for themselves in retirement, rather than their employers, has caused some workers to freeze for fear of making a mistake.

Developing a plan should alleviate anxiety. Here are four ideas to help prepare for unexpected medical costs.

1. Work on developing a retirement spending plan. Fidelity Investments offers various calculators at www.fidelity.com/retirement/planning . AARP offers a retirement calculator to help you estimate retirement costs and determine how much you should save at: tinyurl.com/238dlsq .

2. Buy disability insurance. The Sun Life survey shows that about 9 percent of workers have already withdrawn money from retirement savings, sold assets or borrowed money for a serious illness or medical procedure. And about half say they’ll never be able to replace the money.

That underscores the importance of disability insurance. Such coverage will replace at least a portion of your income if you’re unable to work due to illness or injury. Your employer may offer group coverage. Another option to keep an eye on is a new government program that was part of the health care reform act called the Community Living Assistance Services and Support Act or CLASS Act. Although final rules are under review, the program should begin next year or early 2013. The AARP offers an overview at: tinyurl.com/3fkj2uy .

3. Consider long-term care insurance. The U.S. Department of Health and Human Services (HHS) says 70 percent of people over age 65 will need some type of long-term care. It may be home assistance or it could be a stay in an assisted living facility or nursing home. HHS explains long-term care and offers guidance on costs here: tinyurl.com/6xkccf . Some employers offer long-term coverage. It’s usually less expensive the earlier you take out a policy. Do your research on premium costs, know what you’re buying, and deal with a reputable insurer.

4. Get healthy. One of the most effective tips may be one that many workers have figured out on their own. More than half of the workers surveyed by Sun Life said they are trying to improve their health by dieting, getting more exercise or quitting smoking because they’re worried about future health care costs. Only 12 percent characterized what they’ve done as major changes, though. About 45 percent of workers in their 30s have changed their lifestyle over concern for future health care costs.

Many companies have wellness programs and some offer insurance discounts for workers who quit smoking or enroll in weight loss programs. Look into whether your employer is among them. — AP