When retirement plans fail, the usual culprits are often overspending on travel or supporting family. However, the true disruptor is often health-related expenses—rising premiums and unexpected diagnoses can wreak havoc on financial stability.
Health-related shocks, whether minor or severe, can quickly derail even the most meticulously planned retirement strategies. Planning for the unexpected? That’s a challenge.
Dr. Carolyn McClanahan, a former physician turned financial planner, has witnessed this firsthand. Her medical background taught her how health issues can drastically alter financial futures if not adequately planned for.
In a recent podcast episode, she discusses how unforeseen health expenses particularly affect women and outlines steps to enhance financial security later in life.
CREATING A CAREER BRIDGING MEDICINE AND FINANCE
Dr. McClanahan’s journey into financial planning began when she and her husband had difficulty finding a suitable financial advisor. This experience motivated her to return to school, where she found her passion for financial planning, merging her expertise in healthcare with finance.
Now, she leads Life Planning Partners, a fee-only financial planning firm, and is a prominent advocate for understanding the interplay between healthcare, aging, and financial planning.
“After becoming a financial planner, I realized the lack of understanding among planners regarding health issues and their implications when someone becomes ill,” Dr. McClanahan explains.
COMMON MISCONCEPTIONS ABOUT HEALTH
Dr. McClanahan remains active in medicine through volunteer work to stay connected with the healthcare landscape and aid individuals in comprehending its financial implications.
One critical oversight, she notes, is the significant time, effort, and funds required to maintain health as we age. Retirees often confront substantial costs for premiums, copays, and services not covered by Medicare. Research from the Center for Retirement at Boston College indicates that after accounting for these expenses, retirees typically retain only 71% of their Social Security and 88% of their total income.
“People often overlook these nuances,” she remarks. “This leads to reactive, costly decisions. By educating yourself and planning ahead, you can lessen both anxiety and expenses when health issues arise.”
WOMEN AND THE INCREASED FINANCIAL RISK
According to LIMRA research, women generally anticipate living longer but many are not financially equipped for this extended lifespan, exposing them to greater healthcare costs.
Dr. McClanahan emphasizes that women should proactively consider their care preferences and locations, particularly regarding long-term care, starting in their 50s and 60s.
“When home health care exceeds six hours daily, costs can rival those of assisted living,” she clarifies. “If you need assistance for more than 12 hours daily, expenses may align with skilled nursing facilities. Knowing your financial readiness for long-term care is crucial.”
In addition to the financial aspects, she highlights the importance of discussing healthcare preferences with family and keeping end-of-life documents current.
“Having clear advance directives is essential. When family members understand your priorities, they can make informed healthcare choices that align with your values,” she advises.
Studies reveal that individuals without clear advance directives may incur thousands more in their final year of life compared to those who have articulated their preferences.
If you lack an advance directive, Dr. McClanahan suggests Prepare for Your Care, a complimentary service from the University of California. She recommends reviewing and updating the document annually.
MYTHS ABOUT MEDICARE THAT COULD COST YOU
If you're relying on Medicare for long-term care funding, it’s time for clarity. Dr. McClanahan points out a major misconception: Medicare does not cover extended long-term care expenses.
Additionally, confusion persists between traditional Medicare and Medicare Advantage plans. As Dr. McClanahan notes, Medicare Advantage plans often involve insurance companies handling your care. While these plans may seem appealing when healthy, costs and administrative hurdles can escalate significantly during serious health issues.
“I advise people not to be shortsighted; investing in traditional Medicare can provide better long-term benefits when faced with serious health challenges,” she warns.
To address the long-term care funding gap, guaranteed income sources can be vital for some individuals.
“Social Security is paramount as it’s truly guaranteed,” Dr. McClanahan states. “For those lacking sufficient resources, immediate fixed annuities can ensure reliable income to help cover long-term care expenses.”
COGNITIVE DECLINE: A SUBTLE THREAT TO WOMEN’S FINANCES
LIMRA research shows women worry more than men about cognitive decline affecting their financial choices. Their concerns are valid.
“The greatest risk to an older person's finances often comes from themselves,” Dr. McClanahan notes. “Studies indicate that unpaid bills, bankruptcy, and poor credit often arise three to five years before cognitive decline is officially detected.”
To prepare for this potential issue, she advises clients in their late 50s and early 60s to draft a financial caretaking plan that designates a trusted individual and outlines actions for when financial decision-making becomes difficult.
Additionally, if your financial advisor is nearing an age where cognitive decline may be a consideration, she suggests inquiring about their succession plan.
“Ask them what steps they’re taking to ensure continuity,” she recommends. “If they haven’t thought about it, identify younger advisors you can transition to when needed.”
PLANNING FOR HEALTHCARE COSTS: STAY CALM BUT PREPARE
While planning for uncertain healthcare expenses may feel daunting, practical measures can be taken now to safeguard your health and finances.
Here are Dr. McClanahan’s essential recommendations:
Be an active patient: “Understand your doctor’s rationale, ask questions, and ensure treatments align with your needs,” she advises. “Much of today’s medicine is formulaic due to time constraints. You must take charge—this is vital for managing healthcare costs.”
Recognize that more isn’t always better: “We tend to overuse medical services in our country,” Dr. McClanahan warns. “Consider whether the proposed treatment’s benefits justify its financial, time, and emotional costs.”
Get a grip on your spending: Managing expenses is crucial for maintaining retirement security. “Monitor your spending and be adaptable as economic conditions change,” she suggests.
A proactive step you can take now? Complete the “Healthcare and Aging Game Plan” worksheet from LIMRA. It’ll help you identify your healthcare priorities, make decisions, and anticipate retirement expenses, plus prepare for discussions with your financial advisor.
