How your health affects the health of your nest egg

In previous articles I have mentioned that the financial services and health care industries are becoming more and more intertwined. As medical technology continues to improve, people spend more on medicine and healthcare services such as long-term care.

One of the consequences of improved medical technology is that people are living much longer than previous generations. Not surprisingly, medical advances have also resulted in increased costs.

As a financial adviser, I believe it’s extremely important to build enough into the retirement nest egg that’s dedicated to future health care costs. Keep in mind, Medicare is not free, and monthly premiums need to be budgeted for in retirement.

The amount of your monthly premium is determined by your income. But, Medicare does not pay all of your medically related needs in retirement. There are the obvious costs like co-payments on prescriptions and deductibles, but in addition to that, there is much more that people need to prepare for.

For example, I’ve recently had a number of clients incur significant bills for dental related expenses. And as we grow older, there are often vision and hearing issues that need to be dealt with. I’m not a medical professional, but I can’t imagine anyone ignoring their dental, vision and hearing needs if they had an adequate nest egg.

And then there’s the elephant in the room, long-term care. I can easily see the necessity to have at least $250,000 in your nest egg earmarked for long-term care and medical expenses. If you’re currently employed and you meet the eligibility requirements, Health Savings Accounts are a great way to build this health care bucket for retirement.

To carry an insurance license in Michigan, the state requires 30 hours of continuing education every two years. In addition, in order to discuss long-term care insurance, Michigan mandates an eight-hour continuing education class to keep practitioners current with requirements. Since the financial services industries are growing closer and closer, I thought it important to become properly registered.

The thing that’s different about retirement planning is that you’re planning for the unknown. With goal related planning like college funding, when your adult child walks across the stage and receives their diploma, you know if you saved enough to meet the objective.

With retirement planning, when all is said and done and you enter the pearly gates, it’s often your heirs who determine whether or not you had a sufficient nest egg.

Since long-term care policies are so extremely expensive, the financial services industry is developing programs that meet both financial and health care needs.

For example, there are now life insurance policies that will allow death benefits to be paid while the insured is living for critical care expenses. There are also annuities designed for long-term care expenses.

I bring these to your attention because the trend appears to be to get your dollar to do the double duty of investment and protection. The bad news is the complexity of the programs. They’re innovative, but they’ll require more research, possibly even involving a prospectus.

At the end of the day, as you build your nest egg, keep in mind that a large piece of the pie will probably be spent on health related expenses. That’s why it’s imperative that health care expenses be included in your long-term planning.