Monday, October 5, 2015

The health of your nest egg is at risk

The Affordable Health Care Act notwithstanding, a considerable amount of money is being siphoned out of many retirees’ nest eggs. According to government projection, health care spending will account for nearly one out of every five dollars spent by the year 2024.

Not long ago, I wrote that retirees should earmark at least $250,000 for health care related costs and expenses. To my amazement, I recently opened up one of my financial journals and a headline read, ”Michigan is the most expensive state for retirement health care.”

That was the conclusion reached by HealthView Services, the nation’s leading producer of health care cost-projection software. Their research indicated that a 65-year-old Michigan retiree would spend $3,707 in premiums for Medicare parts B and D supplemental insurance this year.

HVS also said that over a 20-year period, a Michigan retiree would spend $40,000 more than his or her Hawaiian counterpart. It should be noted, however, that Hawaii is among the states with the lowest health care costs.

The bottom line is that, even after all of the health care debates and the passage of the Affordable Health Care Act, the costs associated with health care continue to increase at an alarming rate.

Meanwhile, because the government’s data indicates there’s no inflation, it appears that retirees collecting Social Security benefits will not see an increase in their payment in 2016.

Nonetheless, those same retirees are likely to be hit with jaw-dropping increases on their Medicare premiums. Clearly there’s a disconnect between Uncle Sam’s perception of inflation and the reality of increasing health care related costs and expenses.

Roughly 10,000 people per day turn 65 in America. As this group moves through their retirement years, it’s going to put a great strain on our health care system. The question that I believe will continue to be debated is, “Who should pay for these increasing costs?”

There are already new taxes in effect dedicated to paying some of the increased costs. For example, the .09% increase in Medicare taxes for married couples filing jointly who make more than $250,000 a year. And in 2018, a new excise tax for those whose employers offer so-called Cadillac health care plans will be phased in.

It’s important that people understand before they retire that all of their retirement dollars aren’t going to be spent on vacations. It’s very likely that a significant amount will go instead toward mundane expenses related to their health.

Anyone who is currently working and has a large deductible should see if you’re eligible for a Health Savings Account. If not, before the next enrollment period you should check to see if you can switch your coverage to a plan that is HSA eligible.

Simply stated, an HSA is similar to an IRA in that both are tax deductible and they accumulate tax deferred. Ultimately, the funds can be used for a wide array of health care services.

If you’re not HSA eligible, you just have to be more aware that a significant portion of your retirement nest egg will likely be used for health care related expenses.

After the Affordable Health Care Act was passed, many thought that, as a nation, we would stop debating health care costs. I have a feeling the discussion is just getting started.

Ken will be speaking at a workshop regarding healthcare spending on Oct. 21. For information and reservations please contact Lifetime at 248-952-1744.

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