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Will Health Care Costs Force You to Spend More in Retirement?

You’ve established your retirement plan, nailed down your target goals, and are working towards your numbers. Suddenly, you’re faced with a big medical expense that you aren’t prepared to pay for, and you aren’t sure what to do.

What’s Your Plan?

Leaving the workplace brings about all kinds of changes, many of them financial, and planning ahead for each and every one of them can be tough, but it’s worth the effort in the end. Health care expenses in retirement can be huge and if you haven’t developed a plan ahead of time, can leave you in a bad spot when it comes to finances.

Say you were to enter retirement and a couple years later, you suffer a bad fall and break a bone. With the injury and the accompanying frailty, you are now unable to complete all of the tasks you would otherwise be able to, which means you need long term care. Where do you begin? Do you have a plan in place to cover these types of costs, or was your plan to just wing it?

Health Care Expenses

Fidelity Investments released their annual Retiree Health Care Cost Estimate for 2014 recently and the estimate is right on par with the estimate last year. The average 65-year-old couple retiring this year should expect to spend an average of $220,000 on out of pocket health care expenses during retirement.

That estimate assumes both individuals are eligible for Medicare coverage. Something the estimate doesn’t assume? The cost of long term care. If you do happen to need long term care, which an estimated 7 in 10 seniors will, you should expect to pay much more for your health care.

One year of care in a nursing home currently averages more than $87,000, according to Genworth data. One year of home health care is a little more than half that, just topping $45,000. Even if you don’t need nursing home care, the cost is still massive and can take a huge toll on your assets. So, let’s think hypothetically again. If a medical or health emergency were to arise that required you to receive some sort of long term care, would you be prepared to cover the cost or is there still room for improvement when it comes to your long term care planning?

Planning for Long Term Care

Planning for long term care doesn’t have to involve a huge percentage of your assets; instead, you can use a portion of the interest earned on your investment savings to cover the cost of a policy. If you have a pension, you can use your pension to pay for your premiums, as well. Medicare and traditional health insurance won’t cover the cost of long term care, so it’s up to you to look out for yourself.

Long Term Care Insurance can help you do that by providing you with a separate benefit pool to pay for your care in the future. A long term care policy provides you with the financial security every one seeks in retirement and gives you peace of mind that your nest egg won’t be spent on nursing home care.

It’s impossible to know what kind of health issues we may be facing in retirement. As much as we would like it to, our health now doesn’t definitively dictate our health in the future, so it’s wise to plan for some road bumps along the way. Read more about shopping for Long Term Care Insurance and how to find the best policy that fits your needs.