Health Care Costs Can Hurt Retirement

OCEAN CITY -- If you intend to retire early, planning for your health care coverage is especially important. While it may be an option for some, fewer employers are offering retiree health care coverage. Without employer insurance (or coverage under your spouse’s plan), you might need to buy a private policy until Medicare begins, and the premiums can be substantial.

At age 65, you become eligible for Medicare, which includes Parts A, B, C and D. Medicare covers many medical expenses, but not everything. It currently pays about 60% of retirees’ overall medical costs, according to a 2009 study by the Employee Benefit Research Institute. You can buy a supplemental insurance policy to help cover the rest. Before you buy supplemental insurance, make sure you understand its coverage rules.

Neither Medicare nor supplemental insurance policies cover long-term care. About 70% of people over age 65 need some type of long-term care services during their lifetimes.4 It’s easy to see that you might need long-term care services at some point, and the cost could be tremendous.

For 2010, home health aide assistance (three visits per week) averaged more than $19,000 a year. Also in 2010, the average cost for a semiprivate room in a nursing home was $205 per day. The cost of a private room was $229 per day.

You could try to save and invest more in case you need long-term care. Or you could consider long-term care insurance. Before buying, compare policies carefully. Typical policies pay a daily benefit at a set dollar amount based on where the care is provided—at home, at an adult daycare center, or in an assisted living or nursing facility. Deal only with a top-rated insurance company, because your policy is only as good as the financial health of your insurer.

If you’re already planning for health care costs in retirement, congratulations because that will only make things easier down the road. Otherwise, it’s time to start.

Increase your retirement plan contributions at least a little each year.

If you have personal health factors that might increase your costs, you may need to set aside more than the average person.

If you plan to retire early, check into the cost of private insurance for coverage until Medicare starts at age 65.

(A Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)