You might be super careful when it comes to planning for retirement. I, for one, opened a Roth IRA as soon as I was able. And, of course, you probably took advantage of your employer’s 401(k) match. But, there’s a good chance there are still some elements of retirement planning that you’ve missed. If you don’t act now, it’s possible you could face financial difficulties during your retirement years.
Thinking about living a long life definitely sounds appealing—who wouldn’t want that? Yet, if you don’t factor in longevity when planning, there’s a risk you might deplete your savings sooner than expected. Medical expenses, which might seem far off when you’re young and healthy, can end up being a significant burden.
A certified financial planner, Michael LaCivita, emphasizes the importance of recognizing that retirees are living longer and therefore need more funds for a good quality of life, which includes both medical and long-term care. While staying active and healthy is vital, there are still uncontrollable factors, like family health history or unforeseen illnesses, for which you need to be financially ready.
“Medical costs can really vary depending on your health throughout life,” LaCivita pointed out.
He also argued that too many investors err by being overly conservative with their investment strategies too early. This outdated approach to retirement—like maintaining a traditional 60% stocks and 40% bonds portfolio—doesn’t reflect today’s realities, where many retirees live into their 90s and face heavy care costs that can reach between $12,000 to $20,000 per month for nursing and memory care.
Maintaining a more stock-heavy portfolio might be advisable, as stocks have historically yielded better returns than those traditional allocations, potentially leading to greater asset growth later.
“To prepare for market volatility in your retirement fund, you could consider having a bit more short-term cash on hand for emergencies,” he said.
For insight on healthcare costs, Stidham from E-Health Co. points out how easily these can be overlooked when planning for retirement.
“In fact, many retiree budgets get shocked by unexpected healthcare expenses, even after they qualify for benefits,” she remarked. “Research suggests that 76% of Americans underestimate their healthcare spending in later years.”
To mitigate these surprises, she advises that retirees educate themselves and make informed choices regarding Medicare plans, especially concerning prescriptions and managing chronic conditions.
“Smart choices can really help stabilize your retirement budget and potentially save over $1,800 a year on out-of-pocket costs,” Stidham added.
Stidham also shared three strategies for managing healthcare expenses effectively before they spiral out of control.
“More individuals are opting for Medicare Advantage plans, which now account for about half of all beneficiaries. But navigating the choices can be daunting,” she noted, given that one will often have over 40 plans to choose from in their area.
Consulting with a financial advisor could ease this process, especially during the fall enrollment period to find a plan that fits individual needs and budgets.
“Consumers who take the time to compare Medicare Advantage plans could save upwards of $1,800 a year,” she said.
With so many Medicare beneficiaries living with chronic conditions (68%, to be exact), exploring Chronic Special Needs Plans might be beneficial for those eligible, as they can help reduce prescription costs and offer additional support.
“These additional benefits, such as covering diabetes testing supplies, can greatly enhance quality of care and lower your healthcare costs,” she added.
It looks like being selective about plans can lead to better financial outcomes, especially regarding prescription costs. Stidham observed how different Medicare Advantage and Part D plans have varying lists of covered drugs and costs.
“Shopping around can result in savings of more than $800 annually on prescriptions while maintaining similar drug coverage,” she explained.
Ultimately, it’s crucial to consider potential longevity and healthcare expenses just as seriously as other financial aspects of retirement. Overlooking this issue can indeed be costly, but it doesn’t have to be.
