Planning for Health Care Costs in Retirement

Two key employee benefits – retirement plans and healthcare – are linked together more closely by the decade. Studies show that healthcare costs in retirement continue to be a major factor in whether or not retirement savings hold up. Consider the following headlines:

Few Plan for Health Care Costs in Retirement (PlanSponsor)

Knowledge about retiree health care expenses is minimal, but concern about it is growing.

Health care is likely to be the biggest expense in retirement and tops the list of Baby Boomers’ worries, yet not many people are taking action, Robert Reynolds, president and CEO of Putnam Investments, said during the company’s forum titled “Health, Wealth and the Future of Retirement.”

“For all the talk and worry about health care, we have seen very little by way of solutions or even baseline guidance beyond macro-estimates of lifetime costs, which leave many people frozen with fear,” he said. “It makes no sense at all to talk about retirement savings or lifetime income provision without expressing the numbers in a monthly context and factoring in health care expenses.”

Putnam provided a preview of a new tool to be launched this fall—personalized monthly health care cost projections—being incorporated into its Lifetime Income Analysis Tool, which helps workers model how much monthly income their savings might generate in retirement and determine whether they are on track to maintain their current lifestyle after they stop working.

Research by Brightwork Partners LLC found that only 12% of respondents who have a formal written plan for retirement have factored in health care costs not expected to be covered by insurance.

Budgeting for Healthcare in Retirement (USNews)

Many Americans assume that Medicare, the government-backed health-insurance program, will cover the majority of their heathcare costs after they stop working.

But according to a new report from Fidelity, a 65-year-old couple that plans to retire in 2012 needs an additional $240,000 to cover out-of-pocket costs not covered by Medicare. This amount increased 4 percent from last year’s estimate of $230,000, but it’s still below the 2010 estimate of $250,000. Annual increases in retiree healthcare costs have averaged 6 percent since Fidelity’s first calculation in 2002.

Should You Purchase Long-Term-Care Insurance?  (Wall Street Journal)

Long-term-care insurance. It’s a subject most people don’t want to think about—but many people know they need to.

At first blush, policies that help pay the costs of extended nursing care make perfect sense. Bills add up quickly when you can no longer take care of yourself and your needs exceed what family and friends can provide. Nursing homes, assisted-living centers and home care all are expensive, and there is no telling for how long you may need the service. Buying a long-term-care insurance policy can be a way of making sure your future physical needs will be met. Policies designed in partnership with state governments also give individuals and their families a way to protect savings in the event of burdensome care costs that stretch on for years.

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About thebenefitblog

Eric is a Vice President at Lockton Insurance Brokers, Inc. He joined Lockton in 2005 specializing in Health and Welfare Benefits, Qualified & Non-Qualified Retirement Plans and Life Insurance for Business Planning. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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