Last Updated: September 8, 2009
As the debate around health-care reform continues around the country, a growing number of middle-class Americans are expressing concern about paying for medical costs during retirement, according to a new survey released by First Command.
What's more, according to the July survey of the Financial Behaviors Index, those surveyed are "dramatically underestimating the financial burden they'll be expected to bear."
According to that survey, 72 percent of Americans are at least somewhat concerned about health care costs in retirement, with those closest to retirement expressing the most concern. In addition, respondents to the First Command survey predict that they will need about $33,000 above traditional retirement savings to cover health care costs during retirement. "While significant, this estimate is only a fraction of the $166,000 in out-of-pocket expenses estimated for someone retiring today and living to age 100," First Command Financial, an FPA Alliance firm, said in its release.
Given those findings, financial planners suggest that you might consider the following when trying to determine how much to save for retirement and how much you might save just for health-care expenses in retirement.
As difficult as it is to say, Americans have every reason to be concerned about health care costs in retirement," FPA member, Scott Spiker, CEO of First Command Financial Services, said in a release. "As government programs — including Social Security and Medicare — become increasingly stretched to keep up with the growing population, retired Americans should be prepared to bear more of the financial burden. That's why it's important to take health-care expenses into account now as you plan for your retirement."
Other planners agreed. "Many people struggle with what the priority should be in savings: retirement then education or education then retirement," said FPA member, John Kilroy, CPA, CFP®. "I believe a third category should be included — health care. In fact I believe the correct order for most people should now be retirement, health care and finally education."
Kilroy noted that many financial planners tell their clients to save for retirement ahead of saving for education because there is no loan or grant program for retirement. "Perhaps the same message should now be given for health care," he said.
When contemplating how much to save for health-care expenses in retirement, Kilroy said it's important that you become very familiar with your current employer-based health care coverage, including whether any option exists to continue coverage beyond employment.
"Those who have the opportunity to acquire health care coverage outside work, particularly through professional or other organizations, should investigate its availability," Kilroy said.
If you're married and each of you have employer-sponsored health insurance plans at work, be sure to compare and contrast each person's coverage to determine which may be better to maintain," he said.
If you're nearing retirement, Kilroy suggested that you might want to "establish a small business and obtain coverage through it to replace or supplement other coverage."
It's important to contemplate and calculate your health care expenses in retirement with a financial planner. "Whether retirement is five years away or 50 years away, Americans must take into account the costs associated with health care during retirement," Spiker said. "Medicare and Social Security deficits, combined with higher health care costs and longer retirements, are poised to create a perfect storm. Ignoring the problem won't make it go away, and Americans shouldn't rely on the government to solve these issues. Financial advisers have the tools and expertise to help consumers determine how much to set aside to cover medical expenses and prepare now for the standard of living they desire in their retirement years." Find a financial planner.