Will health issues force you to retire earlier or spend your nest egg quicker than you planned?
Four in 10 Americans retire sooner than they expected; of those, 40% do so because of health issues or disability, according to the Employee Benefits Research Institute.
A couple, both age 65, retiring today will spend, according to Fidelity Investments, approximately $200,000 on health care during their retirement years - and that doesn't include any assisted living or nursing care. As employers continue to curb pension plans and health care coverage for retirees, individuals will shoulder a heavier financial burden for medical services.
Thanks to medical advances, many conditions once considered life threatening can be treated but may result in some level of permanent disability. A disability can increase your health care expenses in retirement beyond what you had planned for and prevent you from earning additional income to cover those expenses. Social Security may provide some disability benefits, but disability insurance, often considered a tool for the earning years, may have a place in your retirement risk management plan.
If you've already been diagnosed with a chronic condition - diabetes, heart disease, high blood pressure, osteoporosis - or suffered a disability, adjustments to your retirement savings and distribution estimates may be needed. If you are already retired, you will need to check your budget and income structure to ensure enough available funds for related costs.
Don't count on your employer to continue health care coverage for you after you retire. Only 30 percent of workers, most of them in government positions, still get health insurance benefits in retirement. Among private-sector employees, only 13 percent have access to employer-sponsored health insurance in their retirement. Some employers will allow retirees to stay on their health care insurance as long as the retiree pays the full premium.
Most early retirees will need to secure private insurance to bridge the gap between employer plans and Medicare, which doesn't start until you're 65. The Consolidated Omnibus Budget Reconciliation Act, or COBRA, allows you to keep group coverage for 18 months but you will pay the full premium. When you're time's up, if you're not yet 65, you'll need to find private coverage.
Regardless of your health, it's important to maintain continuous coverage. A lapse in coverage could make you uninsurable if you have a health crisis between policies. When you end coverage with one insurer, be sure to get a certificate of insurance to document that you had been insured before. Having that document can make it easier to get coverage, particularly if you have a condition that existed while you were still insured.
If you're still working, you may want to consider funding a Health Savings Account (HSA). Anyone younger than 65 can open an HSA after purchasing a qualified high-deductible health insurance plan. Unlike the flexible spending accounts some employers offer with group insurance, HSA contributions and gains can be rolled from year to year - there's no "use it or lose it" requirement - and you retain ownership of the funds even if you terminate employment. Because of the age limit, you should look at an HSA option far in advance of your retirement.
Taking care of yourself can make a big difference in prolonging your working years until you choose to retire and keeping health care costs at bay during retirement years. It's never too late to start taking care of your mind and body by eating right, exercising and getting regular checkups. As a bonus, you'll get more enjoyment out of your retirement years!
Lawrence D. Sprung, CFP of Mitlin Financial Inc., is a Registered Representative with Securities America, Inc., a Registered Broker/Dealer, member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc., a SEC Registered Investment Advisory firm. Lawrence D. Sprung, Investment Advisor Representative. Mitlin Financial Inc. and Securities America are unaffiliated. He can be reached at (631) 465-2017 or by e-mail at firstname.lastname@example.org. Feel free to forward any questions, or future topics you would like to see discussed to email@example.com and put longisland.com in the subject line.