- Written by Steven Brettler Steven Brettler
Healthcare costs are rising, especially for retirees, and many will need long-term care. Learn the moves you can make to help prepare yourself.
Longer lifespans and escalating healthcare expenses are driving investors to control their financial exposure to uncovered bouts of care — particularly in retirement.
According to the U.S. Centers for Medicare and Medicaid Services, the U.S. spends approximately $3.5 trillion a year on healthcare, or nearly $11,000 per person. Overall spending rose 3.96% in 20171, faster than the pace of inflation or wage growth.
As spending rises, patients are also shouldering a larger share of treatment costs — driving up out-of-pocket expenses. The elderly, who require the most care, often bear the brunt of the costs.
It is important to take steps to minimize your financial exposure to uncovered medical costs.
But whereas your incentives for saving for retirement are easy to digest — to be able to afford a desired lifestyle after your working years — planning for the less palatable aspects of old age can be more challenging.
Healthcare Costs Planning
Many people turning 65 will need some type of long-term care services in their lifetimes.
One year in a private room in a nursing home costs $102,200 today and is projected to reach $184,585 by 2039.2 Even with a robust portfolio, you may have trouble handling such large costs with savings on hand.
Many adults nearing retirement age are concerned about healthcare costs but unsure how to budget for them. Many affluent older Americans are unsure or cannot estimate what their annual healthcare or long-term care costs in retirement will be.
Should they encounter serious medical trouble, the costs will be even higher. Many Americans are not even aware of the uninsured costs they may face in these cases. A stroke, for example, may cause paralysis, warranting expensive 24-hour assistance.
Medicare Part A covers nursing facility care for a limited time, but only after a qualified hospitalization.
However, Medicare will not pay for nursing homes when custodial care is the only care needed, nor will it pay for care for conditions such as Alzheimer’s’ disease. Patients suffering from Alzheimer's or other cognitive ailments may live for many years, all the while requiring assistance and, as the disease worsens, expensive hands-on assistance.
Protection for Retirement Savings
Investors in their 30s or early 40s may weight their retirement-funding strategies toward a portfolio of mutual funds or a managed-account solution to provide upside exposure to the market.
Given lower premiums for younger policyholders, long-term care insurance should also be a consideration, she says.
These days, only a handful of insurers offer long-term care insurance, so another option may be life insurance with a long-term care rider, which allows families to tap into the benefits they would receive upon the policyholder’s death while he or she is alive and requires care.
Another option for funding long-term care expenses is to withdraw or borrow money from life insurance policies or generate income from annuities. Note that either of these options would probably fall short of covering costs if someone needs care for many years.
Paying for Unexpected Healthcare Costs
A final consideration is what to do when you’re faced with a large, unexpected medical bill today. One answer may be a securities-based loan, which allows qualified clients to use the eligible securities in a brokerage account as collateral for a loan or line of credit, often at a competitive rate.
When faced with a large healthcare expense, investors often liquidate financial assets to pay for immediate needs. However, this strategy may have unintended costs, such as tax consequences, loss of future growth potential, or an imbalance in your portfolio.
Once approved, a securities-based loan can provide quick access to funds for a variety of needs with the potential to maintain your long-term investment strategy. Your financial adviser can provide you with additional information and help determine if this is the right strategy for you.
Protect Your Finances and Your Health
As healthcare costs continue to rise, it’s important to understand the options you have to help protect the assets you’ve spent a lifetime accumulating.
Your financial adviser has access to multiple long-term-care products from a wide variety of respected insurers and can help you choose the one that offers the optimal combination of cost and benefits.
Steven Brettler is a financial adviser and branch manager with Morgan Stanley in Greenville, Del. He may be reached at (302) 573-4027 or advisor.morganstanley.com/steven.brettler.
Article by Morgan Stanley
1 Source: CMS.gov Centers for Medicare & Medicaid Services
2 Genworth 2019 Cost of Care Survey, conducted by CareScout®, June 2019
Cost estimate based on 365 days of care. Estimates how much care might cost in future years based on 3% annual inflation. https://www.genworth.com/aging-and-you/finances/cost-of-care.html
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