GOLDEN VALLEY, Minn. -- One of the largest and most challenging issues in retirement is how to plan and pay for health-care expenses. That nest egg you're working on could be crushed by medical bills later in life.
Dan Ament, Senior Vice President and Financial Advisor with Morgan Stanley Smith Barney in Wayzata, joined KARE 11 Sunrise to share strategies to prepare for your health care needs.
Why you need to be prepared: Couples retiring this year can expect their medical bills throughout retirement to cost 4 percent more than those who retired a year ago, according to an annual projection released by Fidelity Investments. This was based on projections for a 65-year-old couple retiring this year with Medicare coverage. Annual increases have averaged 6 percent since Fidelity made its initial $160,000 calculation in 2002.
What you need: $240,000 - A newly retired couple will need an estimated $240,000 to cover health care expenses as described above during retirement ABOVE and beyond all the other retirement related expenses they will incur. 133 million Americans have at least 1 chronic disease as of 2005 according to the CDC.
Early retirement? Retiring before age 65 may be desirable, however keep in mind you cannot enroll in Medicare until you are 65. Extending your employer health insurance coverage via COBRA may be an alternative for up to 18 months but recognize it will come at a likely hefty price. Securing private coverage may work as well. The most important point is that you do so in a way that you don't have a lapse in protection.
Planning ahead: Fidelity's findings illustrate the importance of factoring in health care alongside housing, food and other expenses in retirement planning. If medical costs continue to rise faster than personal incomes, many retirees will have to adjust their household accordingly.
Dan Ament is a Financial Advisor with The Ament Group at Morgan Stanley Smith Barney located in Wayzata. Click here for more information.
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