I am sure you have heard that phrase from many financial professionals over the years. This time I want you to really hear it THE RULES FOR RETIREMENT ARE CHANGING!! Hopefully I have your attention now because what I am about to tell you will scare the hell out of you. Whether you are in your 40s or 50s you have been hearing that you need to save for retirement in traditional vehicles such as 401ks, IRAs, and sometimes someone mentions Roth IRA. The reason you are told this is because of the tax deferral and the amount of money you can grow your nest egg for retirement.
If you are a business owner or an employee of a company what I am about to say is a very bold statement and I will take heat for it. Your investment guy, your Certified Financial Planner™, your insurance representative, your CPA, your estate planning attorney and anyone in between I believe is ignoring your biggest concern in retirement. If Health Care costs in retirement was not your biggest concern before reading this, it will be by the time you are done! Our Federal Government has been very honest about it and we just ignore it. Everyone in the media is writing articles on it, yet your financial professional may not even be discussing it.
What if I told you that a 45 year old husband and wife today, based on their income in retirement and life expectancy, could pay as much as $2,000,000 dollars for health care in retirement. How about a couple that is 55 and potentially could spend over $1,200,000 on health care costs in retirement. This doesn’t even include potential Long Term Care costs.
There are few items that have accounted for most of the Health Care Costs in retirement; Changes to the Social Security’s Program Operations Manual system, the Medicare Modernization Act of 2003, and the Affordable Care Act of 2010. With the changes and passing of those three items, four important rules changes happened:
1. Everyone has a Mandatory expense in retirement, Health Care!
a. Social Security – To collect benefits you must accept Medicare Part A (by the way if you don’t take Part A you forfeit all your Social Security benefits and must pay them back)
b. Affordable Care Act – Everyone must have credible coverage
2. Health Care is determined by your income or the Medicare means test. The more income in retirement you make, the more you pay
3. Your Income is basically everything in your retirement savings. Anything that goes on line 8b and line 37 on your 1040
4. Most of your health care costs will be deducted from your Social Security benefits
You may be asking yourself at this point, “well what counts toward my income in retirement?” Examples of income in retirement that count include: Social Security, Wages, Pension Income, Rental Income, Capital Gains (Including home), Dividends (including municipals), annuities, 401(k), Traditional IRAs, 403(b), 457, and SEP IRAs.
The list above are all great vehicles and we should put money in them, but what do we put our money in to not count towards our income in retirement. That list includes: Roth Accounts, HSAs, 401(h) rarely used but can be very good, specific annuities, home equity, and cash value life insurance. If you can stuff as much money as you can into these products, it may pay off in retirement.
On a side note, Social Security will have an increase in 2017 of .30% while Medicare Part B will have an increase of 10.02%. Seems a little out of balance to me and very concerning overall. When historically Medicare Part B has averaged over 7% (Source: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2016.pdf, page 180). While Social Security COLA has a historical average around 4% (Source: https://www.ssa.gov/news/cola).
Now more than ever we need to plan for retirement, but not for the vacations we want to take, or the gifts we want to give to our family, but just to survive and not run out of money due to Health Care Costs.
In closing, if you would like to receive a complimentary personalized estimate of your health care costs in retirement, email me at firstname.lastname@example.org with the following information:
1. Name Primary and Secondary (Husband and Spouse)
2. Age of both
3. State you will retire in
4. Income before retirement
5. Estimated Social Security for both at 65
6. Income you expect to have in retirement
Also, if you would like the most recent Health View Insights White Paper on Health Care Costs in retirement, send me an email at email@example.com and include your name and address in the email.
Don’t wait to make some changes, find a financial professional that understands the planning process of Health Care in Retirement and settle in to a relaxing retirement.
Kurt Arseneau has been in the financial industry for over 15 years. He CoFounded an Insurance Marketing Organization and managed over 250 financial professionals across the country. You can follow him on LinkedIn @ www.linkedin.com/in/kurtarseneau
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. Any hypothetical illustrations presented do not represent an actual investment. There is no guarantee similar results can be achieved. If fees had been reflected, the return would have been less.