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Retirement Plannng: The Doubling Effect March 30, 2009

Posted by retirementwithaplan in retirement.
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Intel co-founder Gordon E. Moore is credited with an observation that has held sway over the technology industry since he first cited it in a 1965 paper. Known as Moore’s law, it describes a long-term trend in the history of computing hardware suggesting that “since the invention of the integrated circuit in 1958, the number of transistors that can be placed inexpensively on an integrated circuit has increased exponentially, doubling approximately every two years. It has continued for almost half a century and in 2005 was not expected to stop for another decade at least.”

Something similar is occurring the health insurance field that should be of particular interest to retirees, future retirees, and those who have just begun to save for retirement. Health care costs have increased 50% in the short span of seven years. If this continues, the cost of insurance in 2002 will be doubled by 2012.

032909_health_2009_costsYour retirement will now command $240,000 of your savings just to maintain health care coverage, up from an estimated $160,000 in 2002. According to a Fidelity spokesperson: “American households, already under strain from the difficult economy, are facing another challenge to their financial security in retirement as medical costs continue to rise steadily.” Brad Kimler, executive vice president of Fidelity’s Consulting Services business, which calculated the retiree health care cost estimate also pointed out that, “with employee-sponsored retiree health care coverage on the decline nationwide, it is imperative that today’s workers begin to set aside money themselves for medical expenses in retirement as part of their overall retirement strategy.”

These cost estimated assumptions for individuals are based on employees or former employees who do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program Medicare. The Fidelity report “estimate takes into account cost sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare.”

And worse still, these estimates do not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

There are some things you can do.
One of the best options puts money aside specially for your medical needs. Most folks invest for retirement, counting on the projected income from those accounts to pay for everything they will need in a post-work world. Calculating your health care costs into this plan can prove daunting and confusing. The best option might be a separate and distinct account.

Some of us may have access to a Health Savings Account (HSA) . These accounts allow tax-deductible money to be put into a separate account that can be used for medical needs only. One of the downsides of these accounts is the chance that you will not tap this account for minor uses, such as in the case of preventative care, in order to keep the account as intact as possible for “future” expenses.

Some of you might consider, depending on where you live, the purchase of supplemental insurance. These policies reimburse individuals over 65 years old for some or all of their cost-sharing, not covered by traditional Medicare. In addition to supplemental insurance, other coverage may also be available (e.g. Medicare HMO). Medicare’s official Web site (medicare.gov), as well as many state Web sites list the supplemental health plans available, including those for Medicare Part D. As individuals approach retirement, they should become familiar with their plan options, the costs and how these vary by location.

One of the most cost-effective ways to approach this challenge is to consider a phased-in retirement plan. Using this method as part of an overall strategic plan should be discussed well in advance of your retirement. Your employer may offer some sort of part-time work that comes with health care benefits. This method acknowledges the fact that you will need to work to cover the gap between your full retirement age benefits officially kick in. This allows the accounts you have been using for retirement to stay in tact longer and with any luck, grow exponentially in the process.

Once you get to retirement, things change.
People often consider changing locations and resettling in another part of the country. This is all fine and good provided you do your homework – with your health insurance needs and costs in mind. More than just maintaining good health – regular and preventive care check-ups, screenings and age-related tests are required – but the best way is to control some of these issues well i advance of your retirement. Maintaining good health while you are still working may give you many added years of healthy post-work enjoyment. The longer these accounts remain untouched, the greater the chances these accounts will continue to grow.

Even if you plan on staying in the community you are currently living – and even more imprtantly, if you plan on relocating, check with the services that may be offered and the quality of that care. If you have a pre-existing condition or expect some sort of hereditary problems, check out the providers in your area first, before making any decisions. Hospital Compare can help. The information found there will help you determine which hospitals are caring for patients who have certain medical conditions or who have undergone various surgical procedures. This national database of hospitals compares the quality of care of a given hospital and a given treatment/surgery. Patients at better-performing hospitals tend to have fewer complications, which reduces the risk of future additional medical expenses.

And lastly, spend the time to review any and all health claims for accuracy. It is not uncommon for mistakes to happen in the claims payment process. These types of errors could be in many forms, including charges for services not rendered or incorrect charges for a given service. When retirees receive medial bills, they should take the time to review them and follow up with their health care provider when they have questions or concerns about billing.

Good preparation now can save you thousands of dollars later, at a time when you may not be able to recoup those losses.



1. Affordable Housing Dutchess County NY - July 17, 2009

Retirement is a scary thought sometimes, wondering if you saved enough money to last you. If you don’t think you need your big home anymore, think about selling it and moving into a senior living community. They have affordable rates for seniors who can live and be comfortable in the community around them. Not to mention make extra money on your house which can help you live more comfortably for longer.

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