Planning For Health Care In Retirement- Part I

Health care expenses are increasing day by day. Also planning for health care expenses in retirement is one difficult task given that it is very difficult to predict health care expenses in your old age. Many companies earlier used to provide life time coverage but now this is a thing of past for many. Even people who retired with life time coverage are finding that this facility has been scrapped on account of cost cutting pressures. This is what happened to my neighbour and close friend Jack. Jack who retired at the age of 65 after 34 years in General Motors as Sales and marketing manager was considered to be one lucky person. He retired with two of the most sought after retirement benefits- pension and lifetime medical coverage. But then recently General Motors due to cost cutting pressures scrapped his retiree health care facility. He however was not the only one some 100,000 white-collar retirees from General Motors also faced the same plight. His monthly pension though was increased by $300 but that is peanuts in comparison to current health care cost. Jack’s case highlights one important fact that one needs to plan for health care expenses in retirement. Below are few tips that will help in your health care planning for retirement:

Forget about employer benefits

Providing for life time health care is now a thing of past given the cost cutting pressures in many companies. As per Kaiser Family Foundation survey  as against 66% of the companies that used to provide life time healthcare cover in 1988 only 20% of companies with more than 200 workers are providing the same in 2009. Only 4% of the small companies are offering life health care cover. Hence most current employees will never face my neighbour’s Jack’s situation because their employer will never provide this benefit in the first place. In fact we suggest that even if you are eligible for life time medical care don’t just keep your fingers crossed. Health insurance for retirees provided by the company can often be changed or terminated by the company like what General Motors did to its employees.

Postpone retirement

One easy way to finance health care expense would be to work longer beyond the current retirement age of 63 of course if your health permits. Postponing retirement has many benefits. First of all it allows you to continue with your saving and hence adding to that pool of funds that you can use for your retirement.  Also by working longer you are giving your investment much longer time and also reducing the number of retired years that will have to be financed from your savings. The amount of money which you can put in the tax-deferred 401(k) if you are employed beyond 50 has been increased to $22,000 this year from $1,500 in 2008. Also with every passing year you postpone your retirement your social security benefits also increase until the age of 70. In other words you can postpone claiming your social security till you are 70 and by doing so you are only increasing the social security amount. Face the fact it is simply impossible to pay for future health cost unless you have enough savings or you work longer.  Also research shows that working longer by keeping you fit and active keeps you healthy for long and this means less medical bills in the future.