Needing long term care in our old age is something a lot of people don’t like to think about, let alone plan. But statistics show that a large majority of today’s population 65 and over will eventually need some type of long-term care service, which is expensive.
In fact, they have a 70% chance of needing long-term care in their remaining years. Other medical and health care expenses also often accumulate in retirement. An average 65-year-old couple will spend $ 295,000 on these costs throughout retirement, excluding long-term care. With these potential bills posing a threat to a stable pension plan, it’s important to find ways to protect the savings nest egg, says Dariusz Godlewski (, a Chartered Investment Advisor and Chairman of the Financial Wealth Alliance. .
“Medical bills and long-term care don’t have to deplete your retirement savings,” says Godlewski. “But they will if you ignore the data and don’t plan for it.
“A lot of people think Medicare covers most or all of your health care in retirement, but that’s not correct. As health care inflation continues, you can take effective financial planning and savings strategies to create a cushion in your nest egg for these needs. “
Godlewski suggests these ways to protect your pension plan against the high costs of medical, health care, and long-term care:
• Health savings account. Having an HSA is one way to build up a nest egg to cover future healthcare costs, and it’s a tax-saving option as well. “You can donate money tax-free, pay no income tax, and withdraw the money tax-free now or in retirement to pay for eligible medical expenses,” Godlewski explains. “And you can also put your HSA dollars to work by investing them. Some choose a more conservative investment strategy than their overall retirement investment strategy. People enrolled in Medicare cannot make new contributions to an HSA.
• Dependence insurance. Purchasing this type of policy allows you to receive a monthly long-term care benefit, either for a specified period or for the rest of your life. A dilemma, Godlewski says, is that long-term care insurance is expensive and people buy it without knowing whether they’ll ever need to use it. Another option, he says, is to purchase a life insurance policy with the option to add a long-term care insurance rider. “An LTC rider allows you to receive part of the death benefit while you are alive,” says Godlewski. “The death benefit can be used for long-term care expenses. The jumper can be triggered by the diagnosis of an illness that makes you unable to take care of yourself.
• Investments. Investing for growth maximizes your savings and creates more space to face future medical bills. “The idea is that assets increase more than the rate of inflation in medical spending, which has generally been higher than consumer inflation,” Godlewski said. “In the context of medical costs, there is a risk of over-allocation to fixed income investments. This strategy, combined with the current low interest rates and the effects of inflation, would lead to a decrease in purchasing power.
“The costs may seem daunting, but most of the costs associated with health care in retirement can be met if you’ve done the right planning,” says Godlewski. “Viewing these costs as an annual expense can make planning and paying for them easier. “