Life Planning Retirement Insurance

Five Ways to Prepare Financially Before a Serious Illness

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The unfortunate truth is, many of us will face a serious and/or chronic illness in our later years. Where we lived, how we lived, our genetic makeup and luck all play a role, but few dodge the bullet entirely. 

We are living much longer than our grandparents did, thanks to medical advances. But modern medicine is much more expensive than it was even 20 years ago. The long-term cost of treatment can be more financially ruinous than the original illness. Many of us face the possibility of an illness wiping out all our savings—and even leading to bankruptcy. 

But there are things one can do to lessen or potentially avoid the hit before an illness enters the picture:

1. Health Insurance

A solid, comprehensive health insurance plan is essential. If you are still working, your employer is probably providing that as part of your benefits, but you want to plan if or how you will be able to take that insurance with you when you retire. All of us are required to take Medicare at “age certain,” so you also want to explore how your plan or options change when you go on Medicare.

Insurance is the primary safety net to offset most healthcare costs. But it won't cover everything and may take treatments off the table that might be more effective.

2. Long-Term Care Insurance (LTC)

If you have the option to sign up for LTC, do it. This is a true contingency health plan, and many never need it. However, this coverage provides for care and support outside the initial treatment--which often must be done by family because most people cannot afford a nurse's cost up front.2 For critical accidents and illnesses that may incapacitate a person for a long time, LTC insurance is a second critical piece in the financial puzzle. Securing LTC when you are younger costs far less than trying to sign up when you are closer to needing the coverage. There's an added benefit: the costs of LTC can be tax-deductible.3

3. A Health Savings Account (HSA)

The HSA is a tax shelter that allows you to take pre-tax money each year and save it for medical expenses.4 If the expenses are valid, the HSA money saved goes directly to covering out-of-pocket costs, from co-pays to pharmaceuticals. This can be key when dealing with the gap between out-of-pocket amounts and when Medicare coverage kicks in.5  Many HSA plans allow you to invest the money in 401(k)s or other vehicles, so it can grow for retirement.  There are no maximum rollovers from year to year. The HSA can also be used for healthcare expenses in retirement.

4. Workplace Disability and Social Security Benefits

If an accident or illness leaves you disabled, you are entitled to a specific government and employer-paid benefits.6 Many people don't use them, feeling embarrassed that somehow taking the benefits makes them welfare recipient. This is not true. We all paid for these benefits out of payroll withholding, so if you need it you have every right to claim these funds.7

5. Always Keep Saving 

Cash savings are the glue and gap-fillers that give you the ability to deal with all the incidental costs that come up when you are ill. Savings prevent you from having to raid your retirement accounts for these costs. Just saving regularly for 30 or 40 years builds a nice safety net that you completely control. You don't want healthcare expenses not covered by your insurance, LTC or Social Security benefits to go on a credit card.  

Illness and sickness are part of life. But you don't have to go broke when it is time for treatment. Do follow the five tips above, and you've fought half the battle before you even darken the door of the doctor’s office.

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This content is developed from sources believed to be providing accurate information and provided by Kelly Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.