Can You Handle a Healthcare Crisis In Retirement?

Most save for retirement and dream of doing fun things like travel. Yet unexpected healthcare costs can derail your plans. Here’s what to consider.

For retirement, we plan and save for years, dreaming of the day when the alarm clock doesn’t ring. But we may not anticipate a major challenge in retirement: healthcare costs, or worse, a crisis.

Healthcare costs will be significant in retirement, says Kathy Kraeblen, a senior wealth strategist at PNC. In a 2017 PNC survey, participants who were still working said they anticipate spending at least 18 percent of retirement income on healthcare.

However, 18 percent may not be enough, especially in the event of a catastrophic illness.

“Few of us realize the potential risks we face,” says Kraeblen, who is based in Raleigh, NC.

Some people think Medicare will cover everything and it certainly does not.

While you can’t anticipate and prepare for everything that can go wrong, there are things you can do to help manage an unanticipated health issue.

Even people who have insurance can suffer financial hardship because of mounting medical bills, she says. Before retirement, think carefully about the risks you may face and do what you can to plan for healthcare costs.

jar labeled 'health' with money in it

Kraeblen says the best thing to do is to be realistic about how much money you will need in retirement. Look at what you expect your cash flow to be and answer fundamental questions about your lifestyle. Is your home paid off? Do you want to take one expensive vacation each year? Are you expecting to support family members?

Most of all, be realistic about your expected income and expenses. “Just go into this with your eyes open,” she says. “Don’t set yourself up for a big problem.”

Then, turn to healthcare costs. Remember, Medicare doesn’t pay for everything, including hearing aids, long-term care and dental expenses. So what will a supplemental policy cost? Kraeblen says to factor in the costs, deductibles and what the policy doesn’t pay to determine the coverage you will likely need.

Other ways to plan for a potential healthcare crisis include:

  • Emergency fund. When you retire, the emergency fund you’ve built up to cover expenses in case you lose your job or encounter unexpected expenses could be repurposed. Kraeblen suggests you consider planning to use some of it for uncovered healthcare costs or healthcare emergencies.
  • Long-term care policy. Kraeblen says financial advisors are mixed on this one. She suggests if a policy designed to cover 100% of potential long-term care expenses is too expensive, think about covering just a portion of the risk in an effort to protect your assets. Or, explore companies that offer a hybrid policy that combines life insurance and long-term care. If you don’t use it for long-term care, “you don’t have to feel like you’ve wasted money” if family members can benefit from the life insurance portion of the policy.
  • Coverage before Medicare. If you’re retiring early, factor in how much you will have to pay for healthcare premiums until Medicare kicks in at age 65. Also look into whether you can continue the health coverage you had with your employer through COBRA, which generally requires an employer with 20 or more employees to offer employees an extension of healthcare coverage in certain circumstances. The premiums will cost more than they did when you were employed, but it may be a viable option.
  • High-deductible healthcare savings accounts (HSAs). If you are covered by a high-deductible healthcare plan, you may be eligible to set up an HSA and direct pre-tax money into the account. If you can afford it while you are still working, pay for your medical costs out of pocket and put money in an HSA and don’t tap into it until after retirement. The money is not taxed when you use it to pay for healthcare costs. The government does cap contributions to accounts, so make sure you know the details of your plan.

Kraeblen says it’s good to look into costs in advance – including gap insurance plans, premiums and costs associated with moving into assisted living or hiring a caregiver. You may not be able to save enough money to cover all the risks, but educating yourself on costs and making a plan is a good start.

“The most important thing is to plan, be realistic and do what you can before a potential crisis to protect your assets,” she says. “After all, you worked hard to build up your assets, so you should work hard to protect them.”

 

To help you plan for retirement, no matter how far away it is, visit PNC’s Retirement Planning Center »

 

Kathy Kraeblen
Kathy Kraeblen says you must go into retirement with open eyes and plan for the unexpected.

If you are considering buying long-term care insurance but can’t afford a comprehensive policy, consider insuring for a portion of your estimated risks. It doesn’t have to be all or nothing.

Kathy Kraeblen