While most of us anticipate health challenges in retirement, many don’t expect that a health care crisis could strike in the pre-retirement decade, which is often when we’re trying to save the most for our golden years.
The average age of a first heart attack for men is 65.5, while the average age for a breast cancer diagnosis is the early 60s. These types of illnesses can derail a retirement savings plan. They can lead to extended time out of work and your savings taking a hit as a result.
This is the situation that Abdul finds himself in. Though he’s always been fit and active, and was planning to work until age 70, he was recently diagnosed with cancer.
At age 66, he’s wondering how this will impact his plan to save heavily over the next four years and whether he will be able to work at all while he receives treatment.
Abdul currently has just over $1 million between his 401(k) and a Roth IRA, and about four months’ worth of expenses in his emergency fund. He makes $120,000 per year and was hoping to contribute at least 25% of his income to his retirement savings over the next four years.
Here are some things to consider if you find yourself, like Abdul, in a major health crisis before you’re due to retire.
Health crises are expensive and tricky to plan for because they are unpredictable. While it may be worthwhile to speak with a financial advisor to help you plan for your financial future after a cancer diagnosis, you should be aware that there’s no right answer in this case — and no way to predict how your disease will progress.
The best advice is to prepare in advance: beef up your emergency savings the closer you get to retirement, and be aware of any risk factors in your family history or lifestyle.
According to Fidelity, American couples estimate they will need $75,000 for health care costs over the course of their retirement, when, in reality, they will actually need $330,000 on average. (2) Fidelity also stresses that with inflation and the rising cost of health care services, the real number may be even higher.
If you are in the same situation as Abdul and a diagnosis hits unexpectedly, first try to trim down your budget so that you can divert as much money as possible toward your care.
According to a 2019 survey conducted by The Mesothelioma Center, 63% of cancer patients and their loved ones reported experiencing financial struggles following a cancer diagnosis. (3)
The Mesothelioma Center also reported that a cancer patient in the U.S. with a traditional employer-sponsored health insurance plan would typically be expected to pay 25% out-of-pocket each month for their medications, which could mean forking out upward of $2,500 a month.
It’s important to be aware of the costs and budget for them as you progress through your diagnosis.
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Plan formularies change often, even for very costly, comprehensive health insurance plans. Getting clear on your coverage can help you plan for different emergency scenarios and avoid price shocks if you do become ill.
Experts recommend paying attention to the different types of copays and deductibles that apply to your plan, and the annual out-of-pocket maximum payments that you could owe.
You should also have an emergency health care fund in place that covers your annual deductible. This fund may be the lifesaver that gets you through the first year of your cancer treatment with no major financial issues and gives you time to make a plan for the future.
For those already in their retirement years, Medicaid and Medicare are essential lifelines for medical care. However, these programs don’t cover everything, so it’s important to keep your emergency medical fund in place after you retire.
Medicare is divided into four parts: Part A, Part B, Part C and Part D. If you’re eligible to receive Social Security benefits when you turn 65, you’ll be automatically enrolled in Medicare Part A, which covers hospital costs, and Medicare Part B, which covers visits to the doctor.
For the other parts of the Medicare program, namely Part C, also known as Medicare Advantage, and Part D, which covers drugs, you must enrol separately.
As a retiree, you should know that the standard Medicare does not cover routine dental, vision and hearing care, prescription drugs, long-term care, podiatry, routine physical exams, chiropractic services and massage therapy. Cosmetic, non-essential surgery and medical costs while you are overseas are also not covered.
For wider coverage, you can opt for Medicare Part C, which is offered by private insurers under contract with the government. However, the most these plans will typically cover is routine dental, vision and hearing benefits and a wellness allowance.
For cancer patients, such as Abdul, Medicare generally does not cover in-home assisted services or room and board in assisted living or nursing homes. Moreover, while drugs may be covered under Part D, any supplements or treatments not prescribed by a doctor will not be covered.
Finally, as someone with a high income and large retirement savings, Abdul probably wouldn’t qualify for Medicaid, which is restricted to individuals with low incomes. Eligibility requirements vary by state, so it’s important to be familiar with the rules in your area.
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Norton Healthcare (1); Fidelity (2); The Mesothelioma Center (3).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
