What’s Scarier Than Monsters??? Numbers…!

May 18, 2012

When I was growing up, I was surrounded by numbers and I actually liked that. (Yes, I’m admitting that I’m a geek from way back.) My friends and I could tell you the batting average of almost any member of baseball’s Hall Of Fame and the stats of major NFL players, compute a pitcher’s ERA in our heads or talk about the winning percentage of various great teams throughout history. Numbers were fun! Numbers were cool! (To us, at least…) Numbers were all that was right with the world back then…Last week, I read an article about the cost of healthcare during retirement and those numbers scared me!

For a couple retiring this year at age 65, without retiree health insurance, the AVERAGE cost of healthcare for the remainder of their lives is over $240,000!!! That’s just the average…and it doesn’t include dental, over the counter, and long term care costs. Those are some scary numbers! Can I go back to when Joe DiMaggio’s 56 game hit streak was an important number? How about Cal Ripken’s 2,632 consecutive game streak? I’d much rather see those numbers than $240,000! The scary thing about the $240,000 figure is that it very well could be higher if you live longer than an average 65-yr old (82 for a man, 85 for a woman) or have an extended illness. We are talking about a quarter of a million dollars on average. How in the world is the average person supposed to deal with this average cost of healthcare?

There are some things you can do today in order to prepare for this cost during retirement. Oh, here’s another scary number…47%! That’s the total inflation for healthcare costs over the last decade, compared to 28% for “normal” inflation. This means that healthcare costs are rising faster than the general rate of inflation so that $240,000 number today will be substantially higher in the future. It’s clear to me that I need a plan! And since I’ve hit the panic button about my retirement healthcare situation maybe we can all help each other. If you have any ideas that I don’t cover, please add them in the comments section.

So, here’s what I’m doing in order to prepare for this situation:

I’m not going ostrich, putting my head in the sand, and not addressing it. That’s probably the most important thing right there! Acknowledge the issue, and put together a plan. That’s always the best place to start. I understand that $240,000 on top of what I already expected to need may seem overwhelming. It may not be possible to save that much money, but I encourage everyone to try to get as close as possible. And…shop for affordable health insurance! The landscape of healthcare is changing before our eyes, and between now and this time next year it may change substantially again. Make yourself aware of your options. Do you have a retiree plan at work? Can you purchase a private policy? What about long term care insurance? All of these things will reduce the amount that you need to save. Learn as much as you can about this. The magnitude of this issue is only going to become greater.
I have a health savings account that I plan to start funding to the maximum level each year. I will attempt to let the money sit in the HSA plan and grow until I retire. Will it be enough? Probably not! But, this is where my grandparents’ “every dollar counts” mantra is important. For a budget item this big, there may not be a single solution.
I am funding my 401(k) with every possible dollar and increasing my contribution percentage by at least 1% each year. If you have an auto escalation feature in your 401(k), sign up for it TODAY! Keep increasing your contribution until you hit the limits allowed under law. ($17,000 in 2012 plus $5,500 if you’re over 50) The 401(k) is going to be a major source of retirement and healthcare funding for me.
Roth 401(k) & Roth IRA options are becoming more popular each year. While this isn’t a part of my plan today, it will be in the near future.
There is absolutely nothing wrong with an account that has no special tax advantages. I’m talking about savings accounts or brokerage accounts. Every time I read something about building dollars for the future, IRAs, Roth IRAs, and company-sponsored retirement plans are highlighted. You can build wealth in savings and brokerage accounts that have no special tax advantages. They offer one advantage that all the other accounts don’t. Complete liquidity! You have access to these funds at any age, any time, and usually there is not a disincentive from a tax standpoint to access these funds. I have a little bit of money going directly into a savings account (it serves as an emergency fund now and will be a healthcare fund if it isn’t depleted when I retire) every month.

As you can see, I have multiple ways that I plan to offset the staggering cost of healthcare. Will it be enough? I sure hope so! If you are doing the ostrich right now…STOP! Read the article linked above. It is really a wake-up call. Start putting together your plan of attack for costs that we know are going to be there and are quite likely to increase significantly. Do it now, please!