You can follow all of the age advice about retirement you want. You could max out every investment opportunity you have from your 401(k) to IRAs (Roth and traditional), pay off your mortgage, eliminate your debt, even develop a second career while you are still working your first. But you will not be able to dodge the unknown territory of health.
The High Cost of Good Health in Retirement
The oddest item of all, being healthy in retirement, while less painful and more convenient than the being unhealthy, is more costly in the long run. This may have been something you have already considered had you run the numbers the way Boston College did in a recent report for the Center for Retirement Research. You may have said that health care is going to cost something and if you were typical, you went with the averages of about $220,000 per couple over the remaining years in retirement.
But good health could point to longevity. And longevity means additional years of costs and the real probability that during those added years, you will get something you hadn’t bargained on getting.
Now the knee jerk reaction would be to ask yourself: “why bother?” And this would be reasonable. If you can’t come close to estimating this cost (it is tough enough trying to figure out tax liabilities, inflation’s impact and the future of the investments you hold in your retirement accounts), what should you do?
Can You Invest Enough to Cover those Costs
You could try to add to your investments and hope that you have added enough. The problem with trying to offset insurance costs is you may never know whether you need it. But if you don’t have it, the costs can be very difficult to absorb and doubly so if you are in the fixed income world of retirement.
If you were to attempt to offset these costs with investments, you would need to begin early, which is not usually when we think about our health in retirement. Suppose you thought about this item at age 50, the typical age when you begin to realize the immortality is not something you possess. You would have to invest in excess of $15,000 a year, returning around 6% to get enough income to cover they typical month of assisted living. That might sound like a lot until you consider the possibility that you may not need it.
If you were to buy a policy to cover any long-term care needs at the same age, you would need to purchase a policy with typical annual premium costs of, depending on coverage, between $2,000 and $10,000 a year. Keep in mind, this is insurance. There is the possibility that if you have some sort of pre-existing condition or a history fo chronic disease issues in your family, this adds to the cost and may not even get you the policy you need.
How Much is Enough?
Also keep in mind that the inflation plays a role as well as the health of the insurer you chose. When the policy kicks in will also add to the costs (first day home care is important) and how long is covers you (at least three to five years). The minimum you should purchase is a policy with a 3% inflation rider, a 100-day elimination period (this acts as your deductible meaning you pay the first 100-days and the policy kicks in afterwards) and provides at least $150 a day coverage. Also, the earlier you buy the policy, the less expensive it will be.
This still doesn’t answer the question of whether you should but if it begins the conversation, you can begin to understand that some sort of plan for this unknown should be considered while you are working. Or you could simply indulge in all of the bad habits your doctors warns you against, die early and be free of the added cost of living longer.
To read the study from Boston College, click here.
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