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When Health Costs Wreck Your Retirement Plan
When Health Costs Wreck Your Retirement Plan

When Health Costs Wreck Your Retirement Plan

After speaking with financial expert Andy Smith, the message is clear: health care costs can wreck your retirement plan.

By Kimberley Fowler

Smith, a Certified Financial Planner® and host of The Mutual Fund Store’s radio talk show which airs in over 70 markets across the U.S., tells us that the problem when planning for retirement is that most people don’t plan for their health care or medical costs. “Health care costs for the average couple over the age of 61 are $241, 000,” Smith says. “People never put these expenses into their long-term retirement planning.”

Health Costs Can Wreck Your Retirement Plan

The problem goes beyond underestimating how much health care will cost in retirement. Illness and other health concerns force many seniors to retire earlier than they had expected — a double whammy for their retirement plans as they have fewer years to save.

“Many people don’t realize how common a serious illness can be,” says Rocco Taglioni, Senior Vice-President, Distribution and Marketing, Individual Insurance and Wealth, at Sun Life Financial. In fact, approximately 70% of people “stop working before they actually plan to – with health problems a predominant cause of sudden forced retirement,” The Globe and Mail reports.

“Major events such as stroke, cancer diagnosis or a serious injury can result in severe financial shock as well as emotional shock,” Taglioni says. "In these situations, people “seriously underestimate the cost of out-of-pocket medical expenses – underscoring the need for a more holistic approach to retirement planning,” he warns.

Catherine Seeber, a senior financial adviser with Wescott Financial Advisory Group agrees, telling Market Watch  that people should consider how much it will cost to replace existing employee benefits.

“Benefits are complicated and expensive,” Seeber says. “If they were in a position, some higher level executives wish they could have negotiated severance and retirement packages that provided more lifetime and spousal benefits.”

The lesson here is that the best laid plans need to have contingency plans. Certified Financial Planners® like Andy Smith can help clients with these contingencies and suggest strategies that will protect retirement plans from health problems, illnesses and other unforeseen events.

A Holistic Approach to Your Retirement Plan

With a holistic approach to retirement planning, you should consider more than how much you need to save. In addition to your retirement savings, pensions and other assets, include the following as part of your retirement plan:

·  Various types of health insurance and life insurance policies including critical illness and long-term care insurance

·  Wills and estate planning including identifying beneficiaries and preparing Powers of Attorney

·  Emergency funds which are liquid and easily accessible

·  A legacy plan which can protect savings and ensure smooth transitions should your career be jeopardized due to health problems or other unforeseen circumstances

·  Costs of retirement communities, home care and palliative care should you be unable to live independently

·  The cost to replace employee benefits, including costs of medical expenses like prescription drugs, eyeglasses, hearing aids and mobility aids including wheelchairs, walkers and canes

It’s important for baby boomers to ensure their retirement plans have taken these considerations into account, but Smith also suggests that baby boomers have early conversations with their own parents.

“Get a sense of your parents costs. People don’t ask their parents what they are paying. Find out what plans they are covered under, their providers, insurance details, budget, prescription costs, their doctor, how much they pay and when they have to pay,” he advises. Although these can be difficult conversations to have, it’s better to collect this information now, when everyone is healthy, rather than during a time of crisis.

A holistic approach to retirement planning includes estate planning, health and life insurance, and other contingency planning that will help ensure that your retirement savings and planned standard of living won’t be derailed, should a serious health event occur.

Have you calculated health costs in your retirement plan? Share your stories and the tips that you may have for us, in the comments below.

About the Author:

Kimberley Fowler is a writer and editor dedicated to improving seniors' lives through education, activism, volunteerism and community programs. Her other passions include yoga, literature, history, education and conservation. She is active in her local community and currently volunteers with the Hamilton Naturalists' Club. Kimberley earned a Master of Arts in English Literature and Language from the University of Windsor, an Honours Bachelor of Arts from Wilfrid Laurier University and a Bachelor of Education from the University of Toronto. View Kimberley's website or connect with her on Twitter @kimsfow and LinkedIn.

This article first appeared on on April 14, 2016

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