by Ken Stelts, 

Investment Representative

When you retire, some of your regular expenses are going to go down. But others are going to go up - and topping the “going up” list is health care. Well before you retire, make sure you’ve got the resources necessary to deal with those doctor’s visits and prescription drugs. 

How expensive will health care be for you during your retirement years?

Here’s a number to consider: A 65-year-old couple retiring today will need, on average, $200,000 set aside to pay for medical costs in retirement, according to a recent study by Fidelity Investments. And this number doesn’t even include the cost of over-the-counter medicines, most dental procedures and, most importantly, long-term care (such as in-home health care or an extended stay in a nursing home). 

Of course, the $200,000 figure is just an average; your costs may be considerably different. For example, you might have retiree health coverage from your former employer, although this seems to be becoming less likely, given the fact that more and more companies are scaling back on precisely these benefits. 

To prepare yourself for the six-figure sums you might need to pay for health care, consider these suggestions:

• Stay healthy. Obviously, you can neither prevent all illnesses nor suspend the natural aging process. However, our lifestyle choices can have a big effect on our health. By eating right, exercising regularly and reducing stress, you can improve your health and possibly reduce the odds of incurring high medical costs in retirement. 

• Contribute to a Health Savings Account (HSA). If you have access to an HSA in conjunction with your medical insurance plan, consider using it. Your money has the potential to grow tax deferred, and you can withdraw funds from your account tax free, provided withdrawals are used for qualified medical expenses. Keep in mind, though, that the contribution limits to HSAs are relatively low, so your savings will probably not grow enough to cover all, or even most, of your medical costs. Yet, every dollar can help. 

• Plan ahead for long-term care. If you are fortunate, you will never have to enter a nursing home or require the services of a home health care professional. Still, you never know. People who reach age 65 have a 40 percent chance of entering a nursing home, according to a study by the U.S. Department of Health and Human Services - and in some areas, just one year’s stay in a nursing home can easily cost $100,000. Another significant percentage of people receive in-home care and never enter a nursing home. Note that Medicare and most medical insurance plans won’t pay for most long-term care expenses. To avoid incurring these potentially catastrophic expenses, consider putting a long-term care protection plan in place.

• Boost your savings. It’s easier said than done, but try to put away as much as you can while you’re working. Fully fund your IRA each year, and put as much as you can afford into your 401(k) or other employer-sponsored retirement plan. If you “max out” on your IRA and 401(k), you might want to invest in an annuity, which provides the potential for tax-deferred growth of earnings and can be structured to pay an income stream that you can’t outlive. 

• Have a plan for health insurance coverage before retiring. Uninsured medical expenses can ruin an otherwise well thought out retirement plan. Be sure you thoroughly understand your options, for both cost and coverage, before leaving an employer sponsored plan. Remember, employers can change retiree medical benefits and current plan premiums and deductibles can often increase dramatically. When looking at your retirement financial projections, consider how you would pay for escalating medical costs.

No one can predict the future. But by recognizing the likely costs of health care during your retirement years, and by taking the steps necessary to deal with these expenses, you can hopefully avoid some unhealthy surprises down the road. b