Healthcare & Insurance Cost Planning
While health care costs a major issue for all generations, it is particularly acute for those on or going on a fixed income plan – namely those in or close to retirement. In fact, some research organizations including Boston College’s Center for Retirement Research have estimated that a person retiring now should set aside over $200,000 solely to cover health care costs in retirement!
With all this in mind, it is critical to take a comprehensive approach when planning health care security. For example, with new legislation that even most of Congress hasn’t read, it’s likely there will be surprises in the coverage. As of this writing, news has come out that FSA’s – Flexible Spending Accounts – will no longer cover over the counter medications. Add this to the increase in threshold for the health costs deductions on Schedule A of the federal income tax return, and the costs to average people keep rising. It may be safe to assume that most people will be paying much more for insurance no matter what anyone does.
There are also risks in group health insurance plans. As experienced with GM, which likely got bailed out for political reasons, having too many older people on a benefit plan – be it health, pension or other – with fewer younger people to pay in will likely be a situation that strains if not breaks, a plan. Therefore, those with retirement insurance benefits from corporations and maybe even some government entities need to be wary about future cost exposure.
What can one do? You do the best you can, but certainly there are some steps that could eliminate, mitigate, or reduce some of the risks. For example, getting control of one’s budget before retirement is a good first step in keeping future emergency costs from causing cash flow strain. Learning to lower expenses now can offer more “padding.” Second, taking steps to keep taxable income to the least amount possible might allow you to get more deductions on medical expenses, avoid your social security from being taxable, and qualify you for lower costs – especially if government takes over health care 100%. I would be rather certain that income levels would determine costs and you don’t want to fall victim to the always-changing definition of “upper income” – which means $44,000 (of “provisional income”) for the 85% social security taxation for married couples for example.
It also makes sense to research plans and care and compare it to how you use care or may use care. Perhaps some plans customize better to your lifestyle than others. It might also make sense to explore ancillary “health’ insurance plans such Long Term Care or Disability Insurance. Remember if you can’t work, your health insurance won’t “pay” you. It’ll just cover medical costs (if that).
Bottom line is, incorporate your health insurance planning into your overall comprehensive financial plan. Coordinate your financial moves to provide you the highest personal benefit, the highest tax benefit, and highest peace of mind.
For more information on retirement consider these other pages from our financial 101 section:
If you’d like to get updates – including articles, free seminars, and reports – that could help you make smart choices about your money, subscribe to our community updates and get a weekly email summary and updates on issues that affect you and your overall quality of life. Also, if you need more immediate answers, feel free to call us for a Quick Consultation.