health insurance

Health Care Costs: The Retirement Planning Wildcard

Kali Hassinger Contributed by: Kali Hassinger, CFP®

Health Care Costs: The Retirement Planning Wildcard

When planning ahead for retirement income needs, we typically think about how much it will cost us to live day-to-day (food, clothing, shelter), and to do those things we want to do, like travel and helping grandkids pay for college. The costs we don’t often think about, those that could potentially wreak havoc on retirement income planning, are health care costs.

According to a recent article from the Employee Benefits Research Institute, the average 65-year-old couple will need $400,000 to have a 90% chance of covering health care expenses over their remaining lifetimes (excluding long-term care).

Longevity is a critical factor driving health care costs. According to the Social Security Administration’s 2020 study, a couple, both 66 years of age, has a 1-in-2 chance that one will live to age 90 and a 1-in-4 chance that one will live to age 95. And considering that Medicare premiums are means-tested, the more income you generate in retirement, the higher your Medicare premiums.

So, what can you do to plan for this potential large cost?

  1. If your goal is to retire early, plan on self-insuring costs from retirement to age 65. Some employers may offer retiree healthcare, or you can purchase insurance on the Health Insurance Exchange through the Affordable Care Act (still out-of-pocket dollars in retirement).

  2. Consider taking advantage of Roth 401(k)s, Roth IRAs (if you qualify), or converting IRA dollars to ROTH IRAs in years that make sense from an income tax perspective. You can use these tax-free dollars for potential retirement health care expenses that won’t increase your income for determining Medicare premiums.

  3. Work with your financial planner to determine whether a non-qualified deferred annuity or similar vehicle might make sense for a portion of your investment portfolio. Again, these dollars can be tax-advantaged when determining Medicare premiums.

  4. Most importantly, work with your financial planner to simulate retirement income needs for health care expenses and include this in your retirement plan. Although you will never know your exact need, flexible planning to accommodate these expenses may help provide confidence for your future.

Contact your financial planner to discuss how you can plan to pay for your retirement health care needs.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.


UPDATED from original post on March 11, 2014 by Sandy Adams.

Any opinions are those of Kali Hassinger and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

Employee Benefits Open Enrollment: 2018 Game Plan

Robert Ingram Contributed by: Robert Ingram

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Now that the Fall season is upon us and the holidays are right around the corner, it is also the annual benefits open enrollment season for many employers.  I know it can be tempting to quickly flip through the booklet checking the boxes on the forms without too much consideration, especially if things haven’t changed too much in your situation.  You’re certainly not alone.  However, setting aside some extra time to review your options is important for not only understanding the benefits you have and what might be changing, but also for identifying potential gaps in your coverages or underutilized opportunities.

Below are some benefits that, if offered by your employer, you should keep top of mind as you are making your elections.

Retirement plan contributions (401(k)/403(b) )

  • Are you contributing up to the maximum employer match? (Take advantage of free money!)

  • Are you maximizing the account?  ($18,500 or $24,500 for age 50 and over in 2018)

  • Traditional 401(k) vs. Roth 401(k) options? 

Click here for a summary of 2018 retirement plan contribution limits and adjustments

Health insurance plans

  • Review and compare your available plan offerings (e.g. PPO vs HMO). Want to explore some of the differences between plan types in more detail? Click here.

  • Focus on more than just the premium cost. Think about the deductibles, copays, and the annual out-of-pocket maximums

  • Consider your health history and the amount of services you use. For example, are you likely to hit the deductible or maximum out-of-pocket costs each year? The benefit of lower premiums for a high deductible plan may be outweighed by higher overall costs out-of-pocket.  Are you less likely to hit the deductible but you have excess cash saving just in case?  A lower premium, high deductible plan could make sense.

Health Care Flexible Spending Accounts vs. Health Savings Accounts

Flexible Spending Accounts and Health Savings Accounts both allow you to contribute pre-tax funds to an account that you can then withdraw tax-free to pay for qualified out-of-pocket medical expenses.  There are, however, some key differences to remember.

Flexible Spending Account for health care (FSA)

  • Maximum employee contribution in 2018 is $2,650

  • Generally must spend the balance on eligible expenses by the end of each plan year or forfeit unspent amounts (use-or-lose provision).

  • Employers MAY offer more time to use the funds through either a grace period option (you have an extra 2 ½ months to spend the funds) or a carryover option (you can carry over up to $500 of the balance into the following year)

For more information on the FSA click here.

Health Savings Account (HSA)

  • Can only be used with a high deductible health insurance plan

  • Maximum contribution in 2018 for an individual $ 3,450  ($4,450 for age 55 and over)

  • Maximum contribution in 2018 for an family plan $6,900  ($7,900 for age 55 and over)

  • All HSA balances carryover (no use-or-lose limitations apply)

Click here for more information about the basics of using an HSA

Dependent Care Flexible Spending Account

  • Pre-tax contributions to an account that can be withdrawn tax-free for qualified dependent care expenses within the plan year

  • Maximum contribution in 2018 is $5,000 ($2,500 if married filing separately)

  • Use-or-lose provision applies 

Life and Disability Insurance

  • Employers often provide a basic amount of life insurance coverage at no cost to you (typically 1 x salary). 

  • You may have the option to purchase additional group coverage up to certain limits at a low cost.

  • Many employers also provide a group disability insurance benefit. This can include a short-term benefit (typically covering up to 90 or 180 days) and/or a long-term benefit (covering a specified number of years or up through a certain age such as 65).

  • Disability benefits often cover a base percentage of income such as 50% or 60% of salary at no cost with some plans offering supplemental coverage for an additional premium charge.

  • Life and disability insurance benefits can vary widely from employer to employer and in many cases only provide a portion of an employee’s needs.It is important to consult with your advisor on the appropriate amount of coverage for your own situation.

Like most things related to financial planning, your benefit selections are specific for your family’s own unique circumstances; and your choices probably would not make sense for your co-worker or neighbor.  We encourage all clients to have conversations with us as they are reviewing their benefit options during open enrollment, so don’t hesitate to pass along any questions you might have. If we can be a resource for you, please let us know.

Robert Ingram is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.®


This information has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional. Life insurance Guarantees are based on the claims paying ability of the insurance company.