This Expense May Disrupt the Great Wealth Transfer — Unless You’re Prepared
The Great Wealth Transfer is a widely touted process where masses of retiring boomers will leave their Gen X and millennial children trillions of dollars in their estates.
The problem is that boomers are discovering higher than anticipated costs, forcing many to spend their precious savings on long-term care and unexpectedly high healthcare costs.
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Not only does this mean that Gen X and millennials shouldn’t count on legacy money coming to them, but they should instead aim to get a jump on their future healthcare planning as soon as possible.
Ensure Your Health Insurance Coverage if You Retire Before Age 65
Some people retire before 65, while others work well past the retirement age. According to Michael Orefice, senior vice president of operations at SmartFinancial, keeping your coverage is important, especially if you don’t get Medicare.
“While health insurance costs more as you age, it also protects you against medical bankruptcy, in case you fall seriously ill or need surgery suddenly,” he said. “An emergency room visit costs an average of $2,600 without health insurance coverage, and much more if there is necessary treatment and an overnight stay,” said Orefice.
Consider Health Savings Accounts (HSAs)
According to Chad Gammon, a financial planner at Arnold and Mote Wealth Management, if you have a high-deductible health care plan (HDHP), you’re eligible for a Health Savings Account (HSA).
“Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax free,” he said. “For 2024, the contribution limit is $4,150 for an individual and $8,300 for a family. There is also an additional $1,000 catch-up [contribution] if you are 55 years or older.”
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Gammon explained that HSA account funds roll over year to year and are often confused with Flexible Spending Accounts (FSAs), which are different because they have a “use it or lose it” function. You can keep the HSA account if you leave an employer.
“Many HSAs offer the ability to invest in funds similar to a retirement account,” Gammon said. “By not withdrawing funds for current medical expenses, you can build the account for healthcare costs in retirement.”
Subsidized Healthcare
When comparing health insurance rates, Orefice said you may find out you’re qualified for a subsidized plan, depending on your income.
“You may also qualify for Medicaid,” he said. “So, don’t go without health insurance coverage because it can cause financial problems if your health takes a turn.”
Buy Long-Term Care Insurance While You’re Young
Many people underestimate the care they’ll need in their older age. Orefice said long-term care insurance is for those who need assistance with their day-to-day activities, either with the help of at-home care or at a facility.
“Long-term care is an add-on rider, which usually complements a life insurance policy. It gets expensive the older you get,” Orefice said. “Even with a long-term care policy, you may be responsible for paying for 30 to 100 days’ worth of assistance before insurance will cover the cost. There is, however, no deductible.”
To illustrate, he said prices for $165,000 in coverage for adults ages 55 through 65 ranged from $950 to $7,225 per year for individuals and $2,080 to $9,675 per year for couples in 2022.
“The older you are or if you’re in poor health, the more this type of coverage will cost,” Orefice explained.
However, in some cases, he added, you may be able to stop paying premiums once your benefits kick in and they may be tax deductible.
Sign Up for Medicare at Age 65
You can start shopping for a Medicare plan three months before your 65th birthday, said Orefice, and you’ll want to; you’ll pay a 10% penalty for each year you could have signed up for Part B but didn’t.
However, there’s an alternative to original Medicare, called Medicare Advantage or simply MA.
“These are private health insurance plans that are still regulated by Medicare,” Orefice said. “They may or may not have a monthly premium, but they do offer coverages that original Medicare does not — namely hearing, vision and dental coverage.”
He warned you do have to make some choices on Medicare, however.
“If you choose to stay with original Medicare, you’ll want to consider which Medicare Supplements (also called Medigap) will save you money or if you want to switch to Medicare Advantage,” he said. “Prescription drug Plan D is one example of a Medicare Supplement. You cannot have both Medigap and MA.”
Investigate Special Allowances
According to David Schlossberg, financial advisor for Assured Concepts Group, if you need healthcare before Medicare kicks in and for more than the 18 months offered by COBRA, be aware of special allowances under the Affordable Care Act (ACA).
“If your tax return can be managed in such a way post-employment and pre-Medicare to reflect negligible taxable income of around $20,000 to $30,000 for a couple who are married filing jointly,” he said, “then the programs made available through the ACA can not only have significant government subsidies offered, but special allowances for greatly enhanced benefits.”
Most people aren’t aware of how to “mold” a tax return for that purpose, so speaking with a financial advisor is key.
Preventative Care Is Key
Schlossberg said you should prioritize preventive care measures to help stave off some costly healthcare scenarios.
“Think about regular check-ups, screenings and maintaining a healthy lifestyle, with the goal that it will potentially reduce future healthcare costs,” he said. “In addition, take advantage of wellness programs offered by employers or insurance providers.”
Create a Healthcare Emergency Fund
According to Melissa Murphy Pavone, CFP and director of investments at Oppenheimer & Co. Inc., another solution is earmarking several emergency healthcare funds.
“Having a healthcare emergency fund in a high-yield savings account is a secure way to grow your money while preserving liquidity,” she said. “Rates are competitive now. Shop around. You will soon start to see the power of compound interest.”
By taking these steps proactively, before your healthcare needs are greater, you can hopefully save money not only for yourself but potentially for your heirs as well.
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