After budgeting and planning to comfortably retire, you’re finally ready to clean out your office or take off the work boots and enjoy your golden years. But what happens if you or your spouse gets sick or ends up being diagnosed with a chronic and expensive medical condition?
Without planning for unexpected medical expenses or debt, Josh Halpern, partner at Halpern & Associates in Independence, and Lee Nathans, account executive at Call Insurance Agency in Columbus, said retirees could find themselves going through retirement savings to pay a sudden onslaught of bills.
To avoid this situation, Nathans suggested retirees consider all options to protect assets should the unexpected occur.
“Looking at medical expenses in retirement, people should consider that pre-retirement, looking at whether they have an option for funding a health savings account as part of their individual or group health insurance coverage,” he said. “Individuals can make tax-free contributions to a health savings account, or HSA.”
Nathans explained though these plans are usually employer-sponsored through a high-deductible health plan, individuals can also use these accounts after they retire.
“You’d use the funds set aside for medical expenses, any qualifying medical or dental expenses and even to pay for Medicare Part B premiums,” he said. “What you don’t use in that account can roll over and be available into the future. So, when you retire, you can still access that money.”
More generally, Halpern advised retirees get serious about current and future market conditions, as well as the performance of their portfolios as a way to determine if they’ll have enough to live off of, and for unexpected expenses.
“There are many tools available to retirees that provide guaranteed income in or around retirement, like guaranteed income annuities or proprietary products through reputable insurance carriers, which give retirees peace of mind by not having to cope with political, economic or financial uncertainties,” he said.
When people retire, it’s because they believe they have enough money to do so comfortably, with funds to spare for surprises. But, more often than not, that isn’t the case. There are a few reasons this happens, Nathans said.
“The amount they have as they move into retirement is a function of what they had put in pre-retirement,” he said. “So having sufficient funds is really about how much you put in and how good the investment returns are. And the reason why they might not have enough is that there could be those out-of-pocket medical expenses they didn’t even prepare for.”
He added another part of it lies in the type of Medicare coverage a retiree has and if that can help curb any expected health care costs.
“There are options, like Medicare supplements, that pay the deductibles and co-insurance that original Medicare doesn’t pay,” Nathans said. “There are also Medicare Advantage plans, which have lower premiums. But you’d pay as you use it – so there would be deductible amounts when hospitalized and per service charges. So, that can get expensive.”
Halpern said many retirees also under-utilize other ways to protect assets in the event of an unexpected medical expense, like life insurance policies and annuities.
“They are the most undervalued, under-owned and misunderstood tools retirees can leverage to ensure they can comfortably maintain their quality of life well into retirement,” he said. “It is critical to meet with a multi-dimensional financial professional who can educate, rather than ‘sell,’ the client on the best available tools to satisfy their needs and accommodate their budget.”
Halpern added people should also use the pandemic as a reason to do an internal audit of their finances that otherwise would have continued to be ignored pre-pandemic.
Nathans also said retirees should engage a knowledgeable professional to make sure they aren’t caught off-guard by sudden new expenses.
“Make sure you have a qualified insurance professional on your team to avoid poor insurance choices, as they can be prevented by having professionals involved in developing strategies for post-retirement medical expenses,” he said.