health savings accounts

Why Health Care Should be Part of Your Retirement Savings Plan, Too

Emily Guy Birken — Wed, 27 Jun 2018 08:30:15 +0000

You might think that retirement planning should be all about the fun and rewarding stuff you are saving up for: remodeling your home, traveling, spoiling your grandkids, and enjoying life. But only thinking about the good parts of your retirement leaves a major piece of your future unfunded: health care.

The fact of the matter is that health care could be your largest retirement expense — by a lot. Each year, Fidelity calculates the average cost of medical expenses for a 65-year-old couple retiring during that calendar year. In 2018, Fidelity has calculated that the average couple will need $280,000 in today's dollars to cover medical expenses in retirement — and that figure does not include long-term care.

As heartburn-inducing as that number is, it's not time to panic. Even people earning average incomes can prepare for health care costs in retirement without robbing a bank, moving in with their children, or learning to practice medicine on oneself. Here's what you need to know about medical care in retirement, and how to prepare yourself and your budget for it. (See also: 4 Affordable Retirement Spots With World-Class Health Care)

Your health in retirement

Let's start with the bad news: It's likely that your health will deteriorate in retirement.

In some ways, it's harder to think about declining health than it is to think about mortality, since we know the latter is inevitable. The statistics on preparing for death vs. preparing for poor health in retirement bear this out, since 42 percent of Americans have a will or estate plan in place, according to a Care.com survey, while the Economic Policy Institute found that only 30 percent of Americans have more than $1,000 saved for retirement.

But declining health as you age is a fact of life. According to the CDC, three out of every four Americans over the age of 65 have multiple chronic conditions. These are defined as illnesses or medical conditions that last a year or longer and require ongoing medical attention or limit daily activities.

In addition, the Alzheimer's Association reports that one out of every three seniors dies with Alzheimer's or another form of dementia. What is so pernicious about these medical issues is the fact that dealing with chronic health conditions or dementia can be devastating to a retirement budget. (See also: Don't Let Poor Health Kill Your Retirement Fund)

What about Medicare?

What is most concerning about the Fidelity calculation of $280,000 for medical care costs in retirement is the fact that the numbers are based on a 65-year-old retiring couple, which means they are eligible for Medicare. In fact, Medicare premiums make up 35 percent of Fidelity's calculation, or $98,000. (The remaining breakdown is 45 percent to co-payments, coinsurance, and deductibles, and 20 percent to prescription drugs.)

Medicare costs more than you realize, and covers less than you'd expect. It's important to understand what Medicare does and does not cover. (See also: 5 Common Medicare Myths, Debunked)

Medicare Part A

Medicare Part A, which is also known as hospital insurance, charges no monthly premium for the majority of enrollees. However, Part A coverage is quite sparse. It is called hospital insurance for a reason — because it only (partially) covers inpatient hospital care, inpatient care in a skilled nursing facility, home health care, and hospice care. In short, Medicare Part A will only pay for a serious medical problem that either lands you in the hospital or is expected to be fatal. It does not cover doctor's visits or prescriptions.

In addition, Part A only partially covers this care. You will still have to meet a deductible of $1,340 (for 2018) for each benefit period, and you will be responsible for a coinsurance amount of $335 per day if you stay more than 60 days in a hospital and $167.50 per day if you stay more than 20 days in a skilled nursing facility. (See also: 4 Common Mistakes to Avoid When You Enroll in Medicare)

Medicare Part B

This is the part of Medicare that works like regular health insurance. The majority of beneficiaries will pay a monthly premium (which can be deducted from their monthly Social Security check) for this program. As of 2018, the monthly premium for most Medicare Part B beneficiaries is $134, although higher income beneficiaries may have to pay more.

On Part B, you will pay all costs for covered services up to the yearly $183 deductible. Once that has been met, you will generally pay 20 percent of the Medicare-approved amount for most doctor services, outpatient therapy, and durable medical equipment. However, Medicare Part B does not cover long-term care (nonmedical help that the elderly may need for daily living), prescription drugs, routine dental or eye care, dentures, hearing aids or exams for fitting them, or routine foot care.

These coverage gaps can help explain the astronomical amount of money Fidelity calculates for health care needs in retirement. (See also: How to Make Sense of the Different Parts of Medicare)

Why you shouldn't panic

While none of this is good news, it's still no reason to go on a bank-robbing spree or start playing the lottery. There are a number of savvy strategies you can adopt right now to help make sure health care does not overwhelm your retirement budget.

1. Take care of your health

Adequate sleep, exercise, and healthy eating may not seem like part of your financial plan, but they can potentially have a greater return than any traditional investment. Taking better care of yourself can help to improve your health and potentially reduce the need for medical care as you age.

However, it's important to remember that even the most fit ultramarathoner who consumes only kale smoothies is not immune to the vagaries of poor health. But you will never regret taking care of yourself, because at the very least, it helps you to feel better in the present. (See also: 7 Smart Ways to Invest in Your Health)

2. Investigate long-term care insurance

One of the biggest coverage gaps in Medicare is long-term care, which is help that a senior might need with daily living activities such as bathing, dressing, eating, and mobility. Private health insurance also does not cover this kind of care, which means any retiree who needs it will be on the hook to pay for it herself. And according to the Department of Health and Human Services, the average 65-year-old today has a 70 percent chance of needing long-term care at some point in the future.

Long-term care insurance can potentially fill the coverage gap. This kind of insurance will help pay for your nonmedical long-term care after you have reached the end of the "elimination period," which can last anywhere from 20 days to 120 days. Until that point, you will pay for your care out of pocket.

Long-term care insurance isn't cheap, though. Prices vary, but a 60-year-old couple could expect to pay between $2,700 and $5,600 per year for a policy that pays for $150 per day in care, for a benefit period of three years. (See also: The Best Age to Buy Long-Term Care Insurance)

This kind of insurance is the best option for about 20 to 30 percent of retirees, according to the Center for Retirement Research at Boston College — those who have a moderate nest egg. For many others, it will make more sense to exhaust their assets to become eligible for Medicaid, which will cover long-term care. (See also: 5 Ways to Make Long-Term Care More Affordable)

3. Consider a health savings account

If you are in good health as you approach retirement, you may want to sign up for a health savings account (HSA). This account, which works a little like an IRA, allows families to contribute up to $6,900 (as of 2018) and individuals to contribute up to $3,450 in pretax income. If you are over the age of 55, you can contribute an additional $1,000 above these limits. The money grows tax-deferred, and as long as you use any withdrawals for qualified medical expenses, they are also untaxed.

The downside of HSAs is that you must have a high-deductible health insurance policy to qualify for one. To be considered a high-deductible policy, your insurance must have a deductible of least $1,350 per individual or $2,700 for a family, and an out-of-pocket maximum that is at most $6,650 per individual plan or $13,300 per family plan.

This makes HSA plans a bit of a difficult choice. If you enjoy good health as you approach retirement, they can be an excellent option, since you can also make penalty-free nonmedical withdrawals after age 65 (although you will pay taxes). That means your HSA can be one part of your retirement nest egg that can be used for something other than medical care if you continue to have good health.

But the high-deductible health plan puts you in a bad position if you get sick before reaching Medicare eligibility. You might end up having to raid your HSA before your official retirement. (See also: How an HSA Could Help Your Retirement)

4. Open a Roth IRA for health care savings

Roth IRAs are tax-advantaged investment vehicles that allow you to put aside already taxed money into the account, where it grows tax-deferred. As long as you keep the Roth IRA for at least five years and are over age 59½, you can withdraw funds from the account tax-free. As of 2018, you can set aside $5,500 per year, and savers over the age of 50 can contribute an additional $1,000.

This makes the Roth IRA a good place to earmark funds for health care in retirement. Since there is no penalty or tax on withdrawn funds, you do not have to worry about how a big withdrawal for medical care could affect your taxes in retirement.

You can determine the asset allocation of your Roth IRA based on your health expectations. If you are in good health as you approach retirement, plan on investing mostly in growth-oriented stocks, since you don't anticipate needing expensive health care until 10 or 20 years after retirement. If you already have a chronic health issue or know that certain medical problems run in your family, you may want to put most of your money in more stable investments, and only allocate a portion for growth. (See also: The Right Way to Withdraw Money From Your Retirement Accounts During Retirement)

The good, the bad, and the healthy

Health care in retirement does not need to overwhelm your budget. If you make sure you recognize the potential costs and understand Medicare's coverage gaps, you can prepare for your medical needs as you age. (See also: Follow These 5 Steps to Full Health Care Coverage in Retirement)

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

11 Basic Questions About Retirement Saving Everyone Should Ask

Damian Davila — Tue, 13 Mar 2018 10:00:06 +0000

Saving for retirement is critically important — we all know that. But sometimes, the confusing details can throw us off course or prevent us from doing all we can to properly grow our nest egg.

Education is the best tool when it comes to most matters of personal finance. And for retirement planning, there are some facts everyone should know. It's time to ask yourself these questions and brush up on the basics of retirement savings.

1. When can I start contributing to a retirement account?

With a traditional or Roth IRA, you can generally start contributing funds as soon as the account has been set up. However, rules can vary for employer-sponsored 401(k) plans. Some 401(k) plans may have a waiting period ranging from six to 12 months to make your first contribution, while others may allow you to contribute immediately. It's a good practice to check all applicable rules for your workplace retirement plan at the time of sign-up and again during every open enrollment period. (See also: 8 Critical 401(k) Questions You Need to Ask Your Employer)

2. How much can I save in each type of account?

You can sock away the most money per year in a 401(k). In 2018, you can contribute up to $18,500 to a 401(k), and an additional $6,000 in catch-up contributions if you're over age 50. By comparison, you can only contribute up to $5,550 to an IRA ($6,500 if over age 50). Due to its higher contribution limits, a 401(k) is a very beneficial account for those trying to make up for low savings in previous years or those close to retirement age. However, if possible, having both types of accounts is the even better option. (See also: 401(k) or IRA? You Need Both)

3. Am I taking advantage of the company match?

If you're offered a company match, you must take advantage of it. And since 94 percent of Vanguard 401(k) plans provide employer contributions, chances are that you have access to a workplace savings plan with a matching formula.

A common formula for matching is $0.50 per dollar that you contribute up to 6 percent of your annual pay. This means that a worker making $50,000 per year could receive an extra $3,000 in employer matching contributions by contributing $6,000 of their annual salary into a 401(k). Some might say there's no such thing as a free lunch, but an employer match on your 401(k) truly is a freebie. (See also: 7 Things You Should Know About Your 401(k) Match)

4. What happens if I change jobs?

From the date that you separate from your employer, you should aim to decide what to do with your 401(k) balance within 60 days. The reason for 60 days is that this is the deadline to complete an indirect rollover into a new retirement account (if your employer were to cash out your entire balance and hand you a check) and pay back any outstanding loans on your 401(k) (if not paid, they become taxable income and may even trigger penalties).

Under most scenarios, you have six rollover options for your total vested account balance:

Keep your account.
Rollover account into a new or existing IRA.
Rollover account into a new or existing qualified plan.
Do an indirect rollover.
Request a full cash-out of your account.
Do a mix of the above five options.

5. Is it better to contribute after-tax or pretax dollars?

There is no right or wrong answer here, as either way offers a benefit. Contributing with pretax dollars (traditional IRA, 401(k)) allows you to reduce your taxable income by deferring income taxes until retirement, at which point you're more likely to be in a lower tax bracket. So, if you're expecting to be making more money now than you will be in retirement, you should contribute pretax money. This is the majority of American workers.

Workers just beginning their careers, workers in professions with a high upside income potential, and individuals expecting a large windfall, such as a family trust or inheritance, can greatly benefit from contributing after-tax dollars to a Roth IRA or Roth 401(k).

6. Can I withdraw money early from my accounts?

Early distribution rules vary per type of plan.

401(k)

Generally, you can only take money from a 401(k) plan early due to a hardship or extreme situation, such as avoiding a foreclosure, making a first-time home purchase, or an unexpected medical expense. However, rules vary per plan: Some plans may only offer you the option to take out a loan, while other plans won't allow you to withdraw money early at all. If you take a distribution from a 401(k) before age 59 ½, you become liable for applicable income taxes and penalties.

Traditional IRA

There are several instances in which you can take an early distribution from a traditional IRA without incurring a penalty. This includes unreimbursed medical expenses, health insurance premiums during unemployment, the purchase of a first home, higher education expenses, and others. (See also: 7 Penalty-Free Ways to Withdraw Money From Your Retirement Account)

Roth IRA

Early withdrawals on contributions from a Roth IRA can be made at any time without incurring taxes and penalties, since you have already paid taxes on the money. Withdrawing any amount that exceeds your contributions counts as earnings, and is therefore subject to tax and penalties. In order to avoid those taxes and penalties, your Roth IRA must be at least five years old and withdrawals must be used for a qualified expense, such as the purchase of a new home or a disability. Higher education costs are also exempt from penalties, but you must pay income tax on the withdrawals.

7. What are required minimum distributions?

Eventually, the IRS wants its money in the form of taxes on your retirement distributions. When you reach age 70 ½, you must begin taking required minimum distributions (RMDs) from your retirement plans. These rules apply to traditional and Roth 401(k) plans, as well as 403(b) plans, 457(b) plans, and traditional IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. If you fail to take your RMD, the IRS will take 50 percent of the amount you should have withdrawn as a penalty.

The exception to the RMD rule is the Roth IRA, which is funded with post-tax dollars. (See also: Which of These 9 Retirement Accounts Is Right for You?)

8. Are there any tax credits for retirement contributions?

Come tax time, eligible workers can claim the Retirement Savings Contributions Credit, better known as the Saver's Credit. Depending on your adjusted gross income (AGI), you can claim 50, 20, or 10 percent of your retirement plan contributions, up to $2,000 for single filers and $4,000 for married filing jointly. For example, a married couple with an AGI between $41,001 and $63,000 can claim 10 percent of their eligible contributions for the Saver's Credit in 2018. (See also: Dumb 401(k) Mistakes Smart People Make)

9. What is the recommended 401(k) portfolio allocation?

Here's some advice from one of the most successful investors of all time, Warren Buffett: Put 90 percent of your 401(k) balance in a very low-cost S&P 500 index fund, and the remaining 10 percent in short-term government bonds. Keeping true to his word, he has included this very same advice in his will. (See also: Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments)

10. What is an HSA?

Those with a high deductible health plan (HDHP) are eligible for a health savings account (HSA), which is a way to make pretax contributions to save for medical expenses. Many HSA providers offer the option to put money in an investment account with several fund options, including mutual funds and low-cost index funds.

The main benefit of saving for medical expenses using an HSA is that you won't have to pay any income taxes on withdrawals used for qualifying medical expenses (even before retirement age). And when you do hit age 65, your HSA will basically become a traditional IRA. You can withdraw funds for any reason penalty-free, only paying income tax on the distributions. (See also: How an HSA Could Help Your Retirement)

11. Does my plan offer financial advice services?

More and more plans are jumping on the bandwagon of offering a robo-adviser (an automated service suggesting or performing certain types of transactions on your behalf). The range of trades that a robo-adviser can perform ranges from periodically rebalancing your portfolio to selling securities.

Fees can range, too: Some robo-advisers charge about 0.15 percent of your account balance or a flat monthly fee. Some plans may also offer you a-la-carte paid options to add a standard robo-adviser service. (See also: 9 Questions You Should Ask Before Hiring a Robo-Adviser)

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This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Retire With Less Than $1 Million in Savings

Aja McClanahan — Fri, 09 Mar 2018 09:00:07 +0000

The sad truth is that many Americans are vastly underprepared when it comes to retirement savings. A 2016 GoBankingRates survey revealed that 33 percent of Americans have nothing saved for retirement at all. In total, 56 percent have less than $10,000 saved.

How much money does it actually take to retire comfortably? It seems like one million dollars is the magic number many people think of — and today, with people continuing to live longer, some think that magic number should be closer to $2 million. But is it really necessary? Could some people could get by in retirement on less?

For some, a smaller retirement income could actually support a reasonable lifestyle provided inflation and health care costs don’t get out of hand. For others, it might be a financial struggle.

That being said, let's explore all the different ways you could live a happy retirement even if you don’t amass a million-dollar nest egg.

Work part-time

If your nest egg won’t stretch far enough for all of your financial needs, a part-time job could help immensely. Not only can the extra income come in handy, but a few hours of work per week can have a positive effect on retirees' mental health, as well as their sense of purpose and social life.

You can choose to work in the same field as you always have or launch a second career, maybe in a field you've always been curious about. Turning a hobby into a business could also be profitable, provided it doesn't require a large financial investment to get off the ground. If you already have the skills and materials needed to get started, it can be a cost-effective and rewarding option to bring in extra income. (See also: 5 Questions Retirees Should Ask Before Starting a Small Business)

Wait to take Social Security

If you can live comfortably on your savings early in your retirement, most people should hold off on taking Social Security benefits for as long as they can. The Social Security Administration reports that if you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase. If you can wait until you’re 70 (the maximum age for waiting) you can get 132 percent of your expected payout. Unless your physical health or family history makes you think you will die before your late 70s, it usually makes sense to wait.

This strategy requires patience and frugality, and it may not work for retirees who need their benefits earlier to get by. Before taking this option, make sure you’ve got the financial means to wait, and that you have no other options for bringing in an alternative source of income. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

Reduce your housing costs

Housing is one of the largest expenses you’ll incur in life. If you can decrease this expense, you could live on a lot less in retirement. One way of doing this is to move into a smaller home or apartment. This could help you eliminate or drastically lower your mortgage payment, as well as minimize other housing costs like utilities, maintenance, and property taxes.

Another option is moving in with friends or family, if they are willing and able to take you in. Sharing a home is becoming increasingly common due to the rising costs of living for not only retirees, but for everyone else. If you don't have friends or family you could bunk with, you could try to find a roommate that could help foot your housing bill. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

Invest in a health savings account (HSA)

A health savings account is available to those who have a high deductible health care plan. You contribute pretax dollars into your HSA, and can use those same pretax dollars to cover qualified health care expenses — everything from hearing aids, to X-rays, to bandages.

The best part about this plan is that it can become a helpful part of your retirement savings when you turn 65. At this point, your HSA basically becomes a traditional IRA. You can withdraw the funds for anything — health care related or not — to help supplement your retirement income. Funds withdrawn for qualified medical expenses will continue to be tax-free, while nonmedical withdrawals will be taxed as ordinary income. (See also: How an HSA Could Help Your Retirement)

Consider relocating to a low-cost country

The number of American expats abroad is very surprising. The U.S. Department of State estimates that as many as 9 million citizens live overseas. There's a reason so many Americans are choosing to live out their golden years abroad; moving to a country with a lower cost of living means that their retirement dollars are stretching a lot further.

In lower cost of living countries, you will see steep savings on housing, food, and even health care. Many people can also afford inexpensive help from locals to assist in tasks like cooking, cleaning, and running errands.

What’s more is that many of these countries have beachfront properties and communities that are affordable even for the non-millionaire retiree. Though you may be leaving friends and family behind, the good news is that they may be more likely to visit you if there’s a beach involved. (See also: 4 Affordable Retirement Spots With World-Class Health Care)

Invest in cash producing assets

If you don’t have one million dollars in cash, you might be able to make up the balance with other assets like real estate, stocks, or a small business. All of these assets have the potential to add another stream of income for you in retirement.

Real estate can be an excellent source of cash flow if you are able to charge rents that exceed expenses for your property. If you own dividend-yielding stocks, the income from dividend payouts can also boost your bottom line. Finally, if you have an interest in a business that is profitable, you could retire on less than $1 million with a moderate amount of monthly net income. (See also: 7 Reasons to Invest in Stocks Past Age 50)

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This article is from Aja McClanahan of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Myths About Health Savings Accounts — Debunked!

Dr Penny Pincher — Wed, 21 Feb 2018 10:01:05 +0000

Health savings accounts (HSAs) provide a tax-advantaged way to save and pay for health care costs. If you have a high-deductible health plan (HDHP), you can contribute pretax income into an HSA and use the money to pay for qualified medical expenses.

The rules and requirements for participating in an HSA can be a little confusing. As a result, misinformation has given rise to several myths that deter people from taking advantage of HSAs. Let's take a look at some of the most common ones. (See also: 10 Reasons an HSA Is Actually Worth Having)

1. HSA funds are lost if you don't spend the money by the end of the year

This is a point of confusion that tends to scare people away from participating in a health savings account. It's not true. Funds leftover in your HSA are not lost at the end of the year, they are yours until you spend the funds. The prevalence of this myth comes from a different health program, the flexible spending account (FSA). You do lose funds in an FSA if you do not use them by the end of the year.

2. You can only earn low interest on your HSA funds

Actually, you don't have to leave your HSA funds in a low-interest savings account. You can invest HSA funds in stocks and other investments for higher growth potential. This is especially beneficial if you don't plan to spend your HSA funds any time soon and can take advantage of tax-free growth for as long as possible. Investment options vary by HSA provider, and some require a minimum balance (such as $1,000) before you can put your HSA funds in investment options.

3. HSA funds can only be used for hospital bills and major medical expenses

Health savings accounts are not only for major medical costs. The IRS identifies a long list of health-related expenses that HSA funds can be used to cover, including smaller expenses that may surprise you. A few examples include:

Acupuncture
Bandages
Chiropractic treatment
Contact lenses
Dental care
Eyeglasses
Hearing aids
Prescription drugs
Physical exams
X-rays

4. You can't get an HSA if you are self-employed

Many employers offer HSA programs as a benefit. Some even kick free money into HSA accounts for employees. However, you don't need to have an employer to open a health savings account. If you sign up for a high-deductible health plan (HDHP), you can fund an HSA through an HSA provider and get all of the same tax benefits.

5. If you never have health expenses, you'll never be able to use your HSA funds

Most people can expect to have significant medical expenses at some point in their lives, especially as they get older. But what would happen to your HSA funds if you stayed healthy and never had any health care expenses? Beginning at age 65, you can withdraw your HSA funds for any reason without penalty, only paying income tax on funds you draw. This feature means that your HSA effectively turns into a traditional IRA when you hit 65, with the added benefit that if you do have qualified health expenses, you can access your HSA funds tax-free for those costs.

6. High-deductible health plans only benefit healthy people with low health care costs

If you have a lot of medical costs, you may decide that it doesn't make sense to sign up for a high-deductible health plan when a low-deductible plan will step in earlier to pay for your care. This isn't looking at the whole picture. The advantages of using an HSA can turn out to be a smart choice for many individuals and families. The higher potential out-of-pocket health care costs with an HDHP can be offset by the lower premiums and tax benefits of a health savings account. You can use an HSA vs. traditional health plan calculator to help you decide which is best based on your anticipated health expenses.

7. HSAs are a hassle to use

This is one of the myths that stopped me from signing up for an HSA at first. I worried that it would be too difficult to get funds out of my HSA when I had medical expenses. However, I found that it is actually easy to access HSA funds. These are some of the features that make an HSA so easy to use:

You can get an HSA debit card to use when paying for health care expenses.
You can write a check to pay for medical expenses, then transfer money from your HSA into your bank account to cover it.
Health savings accounts typically have online tools you can access from your computer or phone to check your balance and see a record of your transactions.

8. If you lose your job or change employers, you lose your HSA funds

Not true! HSA funds are portable from one employer to another, and you get to keep your HSA funds even if you stop working altogether. If you want, you can even change your HSA provider without changing employers.

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This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 False Assumptions That Could Threaten Your Retirement Years

Matt Bell — Wed, 10 Jan 2018 09:00:08 +0000

I'm sure it isn't news to you that many people are not saving enough for retirement. For some, there just doesn't seem to be enough money to pay the bills and save. However, for others, faulty assumptions may be to blame.

Consider the statements below. Have you ever thought or said such things? If so, they might be keeping you from saving as much as you should for your later years.

1. "I'll be able to earn income as long as I'd like to."

A growing number of today's workers are planning to keep working past the typical retirement age. However, their plans don't square with the experiences of today's actual retirees.

According to the latest Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), 38 percent of today's workers expect to retire at age 70 or later, or never retire. How does that compare with today's retirees? Just 4 percent actually left the workforce that late.

Among retirees who left the workforce earlier than planned, EBRI says many did so "because of a hardship, such as a health problem or disability." Others retired early because of "changes at their company."

This same expectation/reality gap can be seen in the number of workers who plan to work for pay after they retire. Some 79 percent say that's their intention whereas just 29 percent of current retirees have actually worked for pay.

What should you do? Instead of counting on paid work in your later years, plan financially to retire at the typical retirement age. At the same time, keep your vocational skills current so you could keep working if you'd like to and are able to.

2. "Inflation will always be low."

If you want to do a checkup on your retirement savings, you may be tempted to take your total nest egg and divide it by the number of years you think you might live. This will give you an idea of how much money you'll have each year to cover your annual costs. When you have enough to get by, you might assume you're "set."

There's just one problem with that approach, which people often forget about: inflation. While the cost of living has only been increasing at a relatively moderate rate in recent years, even a 2 percent rise means $500 worth of groceries today will cost about $600 in 10 years. And who knows how long inflation will stay low?

That's why keeping your entire nest egg in an account that today pays a fraction of 1 percent is ill advised. Given our longer life spans, it's generally best to invest a portion of your nest egg in stocks. (See also: 10 Signs You Aren't Saving Enough for Retirement)

3. "I'll always be healthy."

When you're in good health, it's hard to imagine ever becoming seriously ill. Heart attacks, strokes, cancer, and dementia only happen to other people, right?

That assumption may explain why so many people are ignoring resources that could be used to help pay health care expenses later in life. EBRI found that only 13 percent of account holders contributed the full allowable annual amount to their health savings account in 2016. Meanwhile, according to The LTC Financing Strategy Group, only 16 percent of eligible people over age 65 have a long-term care insurance (LTCI) policy. Cost certainly is a factor in these decisions, but an assumption of continued good health may play a role as well.

What to do? Face the facts. You probably won't always be as healthy as you are today. According to the National Association of Insurance Commissioners, over half the people turning 65 are expected to need long-term care at some point in their remaining years.

If you are using a health savings account in conjunction with a high-deductible health insurance policy, consider boosting your contributions with the intent to carry a large balance into retirement. (See also: How an HSA Could Help Your Retirement)

Also, think about your family history. Did your parents or grandparents have any significant health issues at a relatively young age? If you experience a similar problem, how would you handle the cost? Especially if there's a history of dementia in your family, consider picking up some long-term care insurance. (See also: Is Long Term Care Insurance Worth It?)

4. "If I ever do become seriously ill, my kids will be there for me."

What if you do experience a debilitating illness — one that leaves you needing help with some of the activities of daily living? If you're like most people, you'll probably prefer to avoid living in a nursing home, but what other options would you have?

Think about your children. How old will they be when you are 80 or 90? Will they be available, or will they be busy building their careers, raising their own kids, or both? Are they likely to live near you?

Counting on your adult kids to help care for you may be counting on too much. Here again, a long-term care policy may be in order. Most of today's LTCI policies will help cover the cost of a nursing home and in-home care.

Among the many threats to a financially secure retirement, the difficulty many of us have envisioning the circumstances we'll face in the future is one of the most significant. It can lead to faulty assumptions that, in turn, can leave us unprepared for our later years. The good news is, if we realize early enough that we hold these false assumptions, we can change them and correct course so that we are financially secure in our later years.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How the Self Employed Can Cut Health Care Costs

Elaine Pofeldt — Tue, 03 Oct 2017 08:30:11 +0000

When you run your own business, times like the present — when there is a lot of uncertainty about health care policy — can be challenging. Many self-employed Americans are already struggling to pay for insurance and medical costs. And it's hard to predict whether your premiums or out-of-pocket costs will rise substantially in the near future.

So how do you insulate yourself? There isn't an easy answer, as I found during the roughly 10-year period when my husband and I were both freelancers raising four children in New Jersey, a very high-cost state when it comes to health care. (Last fall, he went in-house with a client, so now we get our health care through his job.) This is what worked for us.

Opt for a high-deductible plan with a health savings account

When it comes to health insurance, many people prefer plans that cover most of their out-of-pocket costs — such as a preferred provider organization (PPO) plan. Unfortunately, the premiums for these tend to be extremely high. For us, enrolling in a PPO plan would have been like taking on a second mortgage. (See also: The One Question You Need to Answer to Choose the Right Health Care Plan)

If you don't use a lot of medical care, you may find yourself over-insured with a PPO plan. Generally, if you're self-employed, the most affordable option is a high-deductible health care plan (HDHP), which allows you to open and use a health savings account (HSA).

The premiums for an HDHP tend to be lower than those for a PPO plan. Like most health care plans, an HDHP will completely cover preventive health services such as routine physicals and vaccinations — meaning you don't pay anything. However, there's a catch. Outside of preventive care, with a high-deductible plan you need to pay a certain dollar amount of medical costs — your deductible — before the plan starts covering your medical expenses. Often the deductible for an HDHP is thousands of dollars.

A health savings plan can help you save for those medical costs in a tax-advantaged account, which is only available to people who have an HDHP. To use a health savings plan, your insurance plan's annual deductible in 2017 must be at least $1,300 if you're an individual, or $2,600 per year for a family plan (these numbers are adjusted every year).

Putting that money into a health savings account on a pretax basis can reduce your taxable income. Because this helps cut your tax bill, there are, of course, limits to how much you can contribute ($3,400 for yourself only, or $6,750 for a family plan). You can use the money you put into the HSA to pay your medical expenses with a special debit card or checkbook you get when you open the account. The IRS publishes a list of expenses you can use an HSA for. (See also: 10 Reasons an HSA Is Actually Worth Having)

To be sure, it is not easy to come up with the money to fund an HSA, especially if you are a freelancer with uneven income. We have funded ours by cutting down on extras. Sometimes making a small change, like switching to a better mobile phone plan, can make a difference. Even if you can only put in a quarter of the amount you're allowed and gradually increase the amount you contribute each year, you'll be further ahead than if you don't put anything into an HSA.

Get second opinions and shop around

There have been many cases over the years where the medical community has revised evidence-based recommendations as new information has become available for treating particular conditions. Given that reality, I've realized that there are many gray areas in medicine and have taken time to get second opinions any time a family member is advised to get a test or treatment that comes with risks or could be very costly. Sometimes, the doctor giving me a second opinion will suggest a way to tackle a problem using a simpler, less expensive solution that I haven't considered.

I've found that functional medicine doctors can be fantastic allies in this respect. These MDs tend to be oriented toward finding the root cause of a problem so you can eliminate it, rather than simply treating the symptoms. Some don't take insurance, but there are a few who do, so it's worth asking health-oriented friends if they know one.

Sometimes, it's even possible to shop around for medical procedures, despite the general lack of transparency in U.S. health care costs. I haven't personally used it, but the site MDsave, which one entrepreneur highly recommended to me, allows you to compare prices and pay for medical procedures in advance at prearranged prices. There are also a number of other websites that let you compare medical costs.

Live a healthy lifestyle

None of us has total control over our health, but by doing what you can to eat well and stay fit, you can at least reduce your chances of developing health problems that have a lifestyle component or mitigate the harm they cause if you already have developed one.

Many chronic conditions can be very costly, as a recent survey by the International Foundation of Employee Benefit Plans pointed out. Employers who completed the survey said the number one condition impacting their medical costs was diabetes, cited by 41 percent of respondents. Obesity, heart disease, and hypertension/high blood pressure were also among the top 10 medical costs.

Two simple things you can do to stack the odds in favor of staying healthy, without any added expense, are buying fresh, unprocessed foods and preparing your food at home as often as you can. When you eat a lot of prepared frozen foods or eat out all the time, it's hard to avoid unhealthy ingredients, unless you can afford the highest-end options. (See also: Are Meal Prep Subscription Boxes Worth It?)

The less-is-more approach can work with fitness, too. Instead of waiting for that perfect day when you can afford to sign up for a CrossFit or Barre class and do it regularly, find some type of enjoyable physical activity that is available to you now, whether that's taking a yoga class at your YMCA, going for a walk or jog around your neighborhood, or playing actively with your kids. And if you participate in an activity that gets you away from your computer, you'll probably meet some new friends, too, which is another good way to reduce stress. (See also: 10 Lifestyle Changes That Will Always Pay Off)

These steps do take some effort, but they can pay off in lower health care costs. That's a big benefit if you're paying for your premiums and medical bills on your own.

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This article is from Elaine Pofeldt of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Ways Couples Are Shortchanging Their Retirement Savings

Ashley Eneriz — Mon, 14 Nov 2016 10:00:06 +0000

Whether retirement is decades away or if it is knocking on your door, there are some key mistakes that couples sometimes make when planning for their retirement. It's not too late to fix them, and addressing these problems now can potentially stave off issues in the future.

Are you and your spouse making these retirement mistakes?

Relying on One's Spouse's Retirement

One common mistake that couples make is that they only rely on one spouse's income and retirement savings. While you might be able to live comfortably off one spouse's income now, when you are healthy, you have to calculate just how much you and your spouse will both need in retirement. Hopefully you will both be healthy well into your last years, but plan for the "what ifs." Have both partners contribute to separate retirement accounts, if you both are working. If one spouse is self-employed or a freelancer, there are still retirement options for them.

Even if one spouse does not work, they can still contribute to an IRA account. Carol Berger, CFP®, of Berger Wealth Management, says that spousal IRA accounts are available for married couples who file taxes jointly. Berger says, "This allows a contribution to be made for the nonworking spouse and helps his or her retirement nest egg grow. For example, in 2016, a nonworking spouse can contribute up to $5,500 to an IRA in their name ($6,500 if age 50 or older)."

Putting Your Kids First

There is no doubt that you love your children and that it is easy to put their needs above retirement needs. However, don't delay on saving for retirement for your kids' sake. Saving for retirement should always trump saving for college education. Furthermore, retirement savings should not be dipped into to pay for college.

The simple reason is that your children will have access to scholarships, loans, and work to help support them through college. Even if they graduate with a heavy load of debt, they have a long time to pay it off. There are no scholarships for retirement, and I am guessing the last thing you want to do is return to work.

"Time does not favor waiting because you lose the benefits of compounding," says Good Life Wealth Management president, Scott Stratton, CFP®, CFA. "If you put $5,000 into an IRA and earn 8% for 25 years, you'd have $34,242. Invest the same $5,000 10 years before retirement, and you'd only have $10,794. Or to put it another way, if you waited until 10 years before retirement, you'd have to invest $15,860 — instead of $5,000 — to reach $34,242."

Avoiding the Issue

Money is not always the easiest thing to talk about, however, if you avoid the issue, then you will only cause the problem to grow. Sit down with your spouse and talk about your present financial situation. Talk about where you want to be financially in the next year, in five years, and in retirement.

If you both agree that you want to spend your retirement traveling and not tied to credit card debt or a mortgage payment, then you need to put in place the right money habits now.

You should develop realistic action steps that will help you reach your financial goals a year from now, five years from now, and most importantly, in retirement. That means you might have to tighten your budget and pay more toward debt. Having clear financial goals will also help you stand firm as a couple when it is tempting to refinance the house to redo the backyard. (See also: 7 Retirement Planning Steps Late Starters Must Make)

Not Planning for Medical Costs

As discussed briefly above, many couples forget to financially plan for medical costs. It is easy to think, "We won't need that much money in retirement because we won't buy anything or have to care for kids." However, medical expenses can add up quickly, especially in the last years of life. The cost of caretakers, regular doctor's visits, special medications, and even residency at a hospice can drain retirement savings in a matter of a few years.

The worst thing is that many adult children are stuck with the financial burden of their parents' medical costs. Nearly one in 10 people over 40 are considered in the "sandwich generation." This means they are caring for their own children while also caring for aging parents. The Associated Press-NORC Center for Public Affairs Research reports that Medicare doesn't cover the most common types of long-term care and that a nursing home can cost as much as $90,000 per year. If retirement funds don't cover the necessary care for aging parents, their children will either have to foot the bill or try to take care of their parents themselves.

Jody Dietel, Chief Compliance Officer at WageWorks says that there is a retirement tool that is often overlooked. A health savings account (HSA) can help cover medical costs. Dietel says, "It's important to understand that there's a place for both a 401K and an HSA. Establishing an HSA gives you the ability to amass savings to be used exclusively for health care expenses and preventing the need to dip into 401K funds for medical-related costs in retirement."

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This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: