The 4 Biggest Threats to Your Retirement (Part 2): Healthcare + LTC

The 4 Biggest Threats to Your Retirement (Part 2): Healthcare + LTC

| August 09, 2023

In this second part of our series on the biggest threats to your retirement, we’ll be discussing healthcare and long-term care. While most people have been on an employer plan for much of their working career, and hopefully have experienced few health challenges, both of those factors change as you enter retirement.

For one, most people will sign up for Medicare at age 65 and leave their employers’ plan behind once they retire. Further, people generally experience more health issues, and thus more costs, as they age. While we can’t change that reality, there is still a lot we can do to plan ahead for both healthcare and long-term care costs in retirement. Here’s what you need to know so you can begin to create a plan.

What Is Long-Term Care?

We are all familiar with normal healthcare expenses; some aren’t as well-versed in long-term care. Long-term care refers to a variety of services and supports to meet personal care needs over an extended period. This care isn’t solely medical but includes assistance with basic daily tasks, also known as activities of daily living (ADLs). ADLs consist of tasks like eating, bathing, dressing, using the toilet, transferring (to or from bed or chair), and continence. Typically, long-term care is needed when chronic illnesses, disabilities, or other conditions restrict someone’s ability to perform these self-care tasks independently. The need for long-term care can arise from age-related conditions, a severe cognitive impairment such as Alzheimer’s, or a disabling accident. It can be provided at home, in the community, or in various types of facilities, including nursing homes and assisted living facilities.

Most people are not aware of the costs of long-term care, which (a) are not covered by Medicare, or a Medicare Advantage or Medicare Supplement Plan, and (b) can run into the thousands of dollars each month depending upon where you live and the type and quality of care you receive. These costs can significantly erode your retirement savings in a very short period of time.

Anticipated Costs vs. Actual Costs

It’s crucial to understand how much you can expect to pay for healthcare costs in retirement so you can properly prepare. Unfortunately, too many Americans drastically underestimate these expenses. According to Fidelity’s research, on average, Americans estimate that a couple retiring this year will spend just $41,000 on healthcare expenses throughout their retirement. Even more striking, 68% of respondents expect those costs will stay under $25,000.

However, this estimate is in stark contrast to reality. In fact, Fidelity’s data shows that an average 65-year-old couple retiring this year can expect to spend a staggering $315,000 on healthcare expenses throughout their retirement. This discrepancy underscores a critical planning challenge for retirees, and it highlights the importance of adequate financial preparation to meet the actual costs that are likely to arise during your golden years.

Steps You Can Take to Prepare

We can’t predict exactly how our health will play out in the future, or what type of care we will need, yet there are still steps you can take now to make it so you are prepared for whatever comes your way. Here are four places to start:

  1. Maintain a Healthy Lifestyle

Maintaining a healthy lifestyle is an essential, yet often overlooked, component of preparing for healthcare costs in retirement. This is common sense advice, but often common sense isn’t always followed. Regular physical activity, a balanced diet, sufficient sleep, and routine medical check-ups can contribute significantly to overall health, potentially reducing future medical expenses. Develop a daily regimen that includes (a) adequate hydration drinking 50% of your body weight each day, (b) eating a well-balanced nutritious diet that includes fruits and vegetables, (c) 7-8 hours of sleep a night, (d) a daily exercise routine, if only to walk, and (e) some form of stress relief through meditation, prayer, yoga or whatever your mind-relaxation technique is. Developing a strong regimen that includes the above can be life-changing. And as we like to point out to our Clients, the first wealth is health.

  1. Select the Best Medicare Option

Beginning at age 65, you are eligible to take Medicare as your health plan. Unfortunately, it gets very confusing very quickly and it is critical to have a guide lead you through the minefield to avoid stepping on a mine that could cause you to miss out on benefits you could be eligible for, or pay more for those benefits. When it comes to choosing a Medicare plan, there are a variety of options. You can choose to enroll in Original Medicare, which includes Part A (hospital insurance) and Part B (medical insurance). However, these plans don’t cover everything, thereby leaving the chance of significant out-of-pocket costs. Alternatively, Medicare Advantage plans, or Medicare Supplement Plans, are offered by private companies, and include coverage for healthcare needs that aren’t included in Original Medicare. These plans are optional but may be worth the extra cost associated with them. By weighing the pros and cons of these different options, you can choose the plan that best fits your health needs and financial situation. Be aware of the Medicare enrollment rules. Missing your enrollment, without an approved Medicare exception, can increase the cost of your Medicare premiums for the rest of your life. Speak with us about what those exceptions are.

  1. Meet With a Financial Professional to Determine Long-Term Care Policies

69% of people will incur some type of long-term care expenses during their retirement years, and for many, these costs can be substantial. Long-term care insurance policies can help cover, or materially defray, the cost of services not typically covered by Medicare, such as assistance with daily activities and nursing home care. According to Genworth’s most recent Cost of Care Survey, the average national cost of assisted living in 2021 was $4,500 per month or $54,000 annually. Of course, your cost will depend on where you live and the quality and type of care you want and need.

Before deciding to purchase one of these policies, you need to consider factors like asset protection, potential caregiver availability, legacy desires, and more. Keep in mind that premiums can be high and often increase with age, so it may be worthwhile to at least review potential policies sooner rather than later. In my mind, it’s best to consult with a financial professional who can help you understand the available options, their costs, and what best suits your circumstances. Self-funding for some is also a viable option through a well-crafted financial plan. The balancing act is always between starting too soon and paying more in premiums over time versus delaying the purchase of a policy and facing either higher premium costs or not being able to get any coverage due to the sudden emergence of a health condition that renders you non-insurable.

  1. Review Investment and Retirement Accounts

One way to help cover healthcare costs in retirement is through carefully planning both your investments as well as your retirement accounts. Specifically, tax-advantaged accounts like Roth IRAs and health savings accounts (HSAs) can be great tools to provide for your healthcare costs, as those accounts enjoy tax-deferred growth and tax-free distributions, as long as you follow all the pertinent rules.

If your Company offers an HSA plan, seriously consider contributing the maximum amount. In 2023 you can contribute up to $3,850 if you have health coverage just for yourself or $7,750 if you have coverage for your family. Starting at age 55, you can contribute an additional $1,000. Note however, once you enroll in any part of Medicare, such as Part A only, you are no longer eligible to contribute to an HSA. For those eligible, the progression we like our Clients to follow is (a) contribute to the 401(k) plan up to the employer matching maximum, (b) then switch to the HSA to contribute the maximum, then (c) return to the 401(k) and contribute up to the legal limit of $22,500, or $30,000 if you are 50 years old or older. HSAs provide you with a triple threat tax savings- contributions are pre-tax, the earnings are tax deferred, and all distributions for health care costs (no matter when incurred) come out tax free. Most HSA plans allow you to invest in a solid cross section of stock and bond mutual funds, similar to your 401(k) plan. There is no better retirement plan available on a contributory basis than the HSA plan.

Inside those accounts, review your investment selection so it matches your risk tolerance as well as your risk capacity and the need for long-term growth so you can adequately fund your minimum lifestyle expenses, healthcare costs, and your fun bucket.

Planning Now Is the Best Medicine

Don’t let healthcare costs and LTC costs catch you off guard. By starting to plan for these expenses now, you control the narrative of your financial future. While there are a number of decisions you need to make, you don’t have to do it alone.

With over 30 years of experience navigating the retirement landscape, I’d welcome the opportunity to review the four biggest threats to your retirement and help you develop a plan that can help you effectively navigate through them. To get started, you can schedule an introductory meeting here, or contact me at


About Steve

Steve Sansone has over 30 years of experience in the retirement plan industry and is the Managing Director of the Valencia office at SageView Advisory Group, one of the largest Registered Investment Advisor firms specializing in retirement plans. As an Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor practitioner, Steve works with professional service groups and companies of all sizes seeking to create a world-class retirement plan experience for their plan participants. He serves as an ERISA 3(21) or 3(38) Advisor, bringing independent, conflict-free services to both Plan Sponsor Committees and retirement plan participants. Steve’s expertise in Cash Balance Plans spans nearly 20 years and is one of the few Advisors in the industry that understands both sides of the Cash Balance equation: Actuarial and Investments. He considers his work to be the greatest financial rescue mission of this time, helping people retire on time, sufficiently prepared to write the next best chapter of their life. To learn more about Steve, connect with him on LinkedIn.

SageView Advisory Group, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where SageView Advisory Group, LLC, and its representatives are properly licensed or exempt from licensure. No advice may be rendered by SageView Advisory Group, LLC unless a client service agreement is in place.