Financial Planning with Health Insurance in Mind

How much might health care cost you someday?

Provided by Roy Smith – President @ Atlas Benefits

“Financially speaking, what would be the worst thing that could happen to you?” If you ask a hundred people in their forties that question, you may get a dozen different answers. Some may say “my business going under” or “losing my house.” Some might say “a divorce,” “a lawsuit,” or “being laid off.” But how many would say “a severe illness?”

A catastrophic illness seems like a remote possibility to many; distant, decades away. As a result, that possibility may be overlooked in our financial planning.

The healthiest of us may need to save the most for health care. This may seem paradoxical, but think about what many people in their eighties or nineties experience: years of declining health and mobility, and accompanying high health care expenses.

Two projections of average retirement health care costs are very illuminating in this regard. Empower Institute (an offshoot of retirement plan administration firm Great-West Financial) has calculated the amount of money that 65-year-old males with particular medical conditions will need in order to absorb 90% or more of future health care expenses. A 65-year-old man with Type 2 diabetes, for example, will need $88,300 (in today’s dollars) to cope with those costs, according to Empower’s projection. It also estimates that a 65-year-old tobacco user will require $114,900 and a healthy, non-smoking 65-year-old male, $143,800.1

Why the difference? According to the Empower forecast, the 65-year-old diabetic has a life expectancy of 78, versus 81 for the tobacco user, and 87 for his healthier counterpart.1

How about a healthy 65-year-old woman? Empower projects she will need a retirement health care fund of $156,000, as women currently outlive men on average.1

Another take on all this comes from the respected Employee Benefit Research Institute. EBRI estimates that the average healthy 65-year-old today will need $124,000 to handle future medical expenses. EBRI’s director of health research, Paul Fronstin, told the Wall Street Journal that a pre-retiree should adjust that number for inflation as fo