Retirement Planning: Focus on Health Not Wealth for a Happy Retirement

Retirees say it is health not wealth that is important for a happy retirement.

Retirees say it is health not wealth that is important for a happy retirement.

More than 80% of today’s retirees say health is the most important ingredient for a happy retirement, meaning that the majority value good health even over financial security.

In fact, only 58% of retirees say being financially secure is most important to them, according to a Merrill Lynch study of more than 5,400 Americans.

This sentiment also rings true for baby boomers (born between 1946 and 1964), who are nearing retirement and beginning to prepare for the “great unknown.”

Baby boomers, the study suggests, are taking charge of their health and will demand more from the health care system than their parents did.

But this cohort — and others — will need to consider the rising costs of health care when planning for a happy retirement, especially since paying for health care is Americans’ greatest financial concern, the study shows.

To prepare for these costs as you approach retirement, financial planners suggest taking five considerations into account:

1. Understand What “Health” Means

When discussing “health care,” most people probably envision trips to the doctor, procedures, medications and long term care.

But it can include much more than that in retirement, says Sarah Swantner, financial advisor with Rapid City, South Dakota-based Kahler Financial Group.

“One of the things we talk about with our clients is: what are your goals? What would really bring you meaning in your life? What goes along with that is a discussion around how you are going to stay healthy and how much that’s going to cost,” she says.

Exercise programs, shopping at health food stores, and activities that nurture your mind, body and spirit are all things to consider when preparing for the costs of good health in retirement.

2. Budget for Health Care Costs

As you’re evaluating your current savings and projected costs during retirement, make a separate budget for health care costs. This will ensure you stay on track and don’t overspend any account.

“One of the things we help clients do is come up with a total dollar amount that they can safely spend each year,” Swantner says. “So the next step is to say, if you can safely spend $50,000 per year, then let’s allocate some of that to health care. This is going to be part of your regular expenses.”

Don’t wait until your health declines to start planning for these costs. One mistake retirees make is excluding health care costs from their budget early in retirement, with the notion that they can cut spending on everything else once their health declines later in life.

“There may be lots of health care costs at that time to maintain a comfortable life,” Swantner says, adding that the earlier you plan for these costs, the better.

3. Consider the Impact of Inflation

Many people approaching retirement significantly underestimate the impact inflation and taxes will have in retirement, according to a 2012 Allianz Life survey of nearly 1,100 “transition boomers” — those ages 55 to 65.

While health care costs ranked as their biggest retirement concern, far fewer thought keeping up with inflation (10%) or taxes in retirement (6%) were of top concern.

But financial planners suggest inflation, specifically, should be part of a health care budget in retirement.

“When I run retirement projections, I usually use a 2.5% inflation rate for overall retirement expenditures, but I use 5.5% inflation for health care,” says certified financial planner Cynthia Petzold, of Roanoke, Virginia-based CommonWealth Financial Planning, LLC. “You can see how $10,000 a year in health care costs for today’s retiree can balloon to tens of thousands of dollars annually by the end of retirement.”

4. Research Medicare Coverage

Most people become eligible for Medicare, a federal health insurance program, when they turn 65. But Original Medicare (Parts A and B) may not cover all of your health care costs.

Medicare Part A pays for hospital care, while Part B pays for doctor visits and other outpatient care. You can enroll in a Medicare supplemental insurance plan to help pay for costs and benefits that aren’t paid by Original Medicare Parts A and B. You can also enroll in a stand-alone Medicare Part D plan for help with prescription drug costs.

“Be aware of what Medicare covers and doesn’t cover,” Petzold says. “Most people will need either their employer’s retiree’s health insurance or a Medicare supplemental (Medigap) policy plus Medicare Part D for prescription drugs to cover Medicare Parts A and B deductibles, coinsurance and other costs not covered by Medicare.”

Learn more about and compare Medicare supplemental options.

5. Start Planning Now

Whether you’re five years away from retirement or 15, start planning for your health care needs now.

Though having a financial planner will help you navigate the costs of health care, you can start preparing for the future on your own by embracing a healthy lifestyle now, Petzold says.

“[Control] those aspects of a healthy lifestyle that we can control: quit smoking, exercise regularly, eat right, lose weight if necessary,” she says.

Additionally, do your homework: Educate yourself on your retirement health care options. Finally, as with other aspects of retirement spending, save more and spend less now. Doing these things will help ensure you have a healthy — and happy — retirement.

“With people living much longer and health care costs increasing more rapidly than the rate of inflation, all pre retirees need to plan for health care costs, year in and year out, for the rest of their lives,” Petzold says.

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