What Women Need to Know About Planning for Health Care in Retirement

Factoring in rising health care costs is an essential part of the retirement planning equation. It takes even more priority for women, who face higher health care expenses as they grow older.

A 2016 report from HealthView Services found that a 65-year-old woman retiring now will spend approximately $314,673 on health care in retirement. That’s 18 percent more than a 65-year-old man would pay.

This puts women at a disadvantage for making their retirement savings stretch further. The problem is compounded by the fact that women often face obstacles in building their investment portfolio.

The gender wage gap, for example, means many women are saving for retirement on a smaller salary. A Vanguard study revealed that while women save a larger percentage of their income than their male counterparts on average, men have account balances that are more than 50 percent higher due to the difference in earnings.

For women who are actively investing for retirement, finding ways to mitigate the impact of future health care costs is a priority.

 

Up the ante. If you’re concerned about health care taking a bite out of your retirement income, you may want to take a second look at your target savings number.

“Aim higher,” says Terra Bonucchi, a certified financial planner and financial advisor with Advance Capital Management in Southfield, Michigan.

Bonucchi advises clients to look at what they think they’re going to need in retirement and add another 10 to 15 percent to the total.

“If you plan with a higher than average expense figure and save a little more aggressively, then you have a better chance of success,” Bonucchi says. “No one has ever said to me, ‘I wish I wouldn’t have saved so much.'”

 Evaluating where you’re investing your retirement dollars is the next step. “It’s essential that women maximize retirement contributions from their employer,” says Patricia Cathey, an investment advisor with Smart Retirement Plan in Denver.

Cathey advises investing enough to qualify for the full company match, if one is offered. She also advocates investing in a Roth IRA. “You’ll pay taxes on the money today but then you’re able to withdraw it tax-free in retirement,” Cathey says. “It’s beneficial to pay taxes now because tax rates are relatively low and could go even lower.”

A health savings account is another investment avenue women should explore, says Dana Anspach, founder of Sensible Money in Phoenix. “Funds in an HSA grow tax-free and can be withdrawn tax-free when used for qualified health care expenses,” Anspach says, which can give women an edge in terms of their life expectancy.

“As women live longer and are likely to be single later in life, they’ll be filing at single tax rates,” Anspach says. “Having a tax-free source of funds, such as savings in an HSA, Roth IRA or Roth 401(k) can make a big difference.”

Understand the financial implications of Medicare. Medicare can be a help with managing health care costs in retirement, but there is a financial toll associated with this coverage.

Byron Ellis, managing director at United Capital in The Woodlands, Texas, says women who are on the verge of retirement need to account for the cost of Medicare Part B premiums.

“Medicare premiums are based on your prior year’s income and you could be in for quite a shock the first year of retirement when you see how big the monthly cost is,” Ellis says.

 Chris Alberta, president and senior financial advisor at Principium Tactical Wealth Management in Brighton, Michigan, says women earning high salaries should be aware of how that could affect their health care costs. “Unless something changes drastically, Medicare’s model for income-related premiums will continue to charge higher earners significantly more for their Part B coverage,” Alberta says.

He offers an example of how the costs can add up. As of 2017, the standard monthly premium is $134. A single filer earning between $160,000 and $214,000, however, would pay $348 per month. When you add in the costs of a supplemental plan and prescription drug coverage, the yearly total could approach $10,000.

Women need to keep that in mind if they’re contemplating working beyond age 65 or if they’re planning to execute a Roth conversion in their first year of retirement. A Roth conversion could reduce your taxable income in future years but it can trigger a much larger tax bill in the short term, which would impact your Part B premiums.

Plan now for long-term care and Social Security. Long-term care can add substantially to your health care costs in retirement and women should think about insuring against it. Purchasing long-term care insurance sooner rather than later is ideal, says Lisa Hutter, senior director of wealth planning for Wells Fargo Private Bank in Austin, Texas.

“Long-term care insurance, just like life insurance, is generally less expensive the younger and healthier you are,” Hutter says.

Kimberly Foss, founder of Empyrion Wealth Management in Roseville, California advises her clients to look into long-term care insurance between the ages of 50 and 60, before the cost becomes too prohibitive. She says women should first ask themselves whether they really need this type of insurance. “Age, health history and family support are all factors in deciding whether long-term care insurance is needed or not,” Foss says. Women who have few health issues and substantial investments may be able to self-insure.

 Long-term care planning is also important for your spouse if you’re married, says Ellen Jordan, senior vice president and women’s wealth advisor at Bryn Mawr Trust in Bryn Mawr, Pennsylvania.

“Couples should plan to cover health costs for both individuals,” Jordan says.

She recommends that couples research hybrid long-term care insurance, which is a single premium policy combining long-term care coverage with a small death benefit. In that scenario, a woman whose spouse passes away without using the long-term care component would still benefit financially.

Social Security, like Medicare, can reduce some of the financial pressure women may feel as they enter retirement but the timing is critical.

Delaying Social Security, if possible is something women should consider, says Tiffany Welka, vice president of VFG Associates in Livonia, Michigan. Women who can hold off on taking Social Security until age 70 would see their monthly benefits increase by 8 percent.

“You’d have that higher benefit for the rest of your life,” Welka says, but she cautions women against waiting until the last minute to decide. “Integrating when to take your Social Security benefits with your health care plan and retirement income plan is something that women should start thinking about prior to age 62.”

Last posted by Rebecca Lake at money.usnews.com

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