Don’t let health care costs hamper your retirement

• Published August 21, 2008

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Not having a plan to take care of your health care costs could take a big bite out of the retirement savings you've worked hard to accumulate.

Health care costs will probably continue to grow faster than inflation, and a lot of employers are reevaluating if they will be able to offer the same level of retiree health insurance coverage. Having the right amount of funding begins with understanding how much you will need to save—and what your options are for saving.

According to the 2007 Retirement Confidence Survey from the Employee Benefit Research Institute, assuming Medicare benefits remain at current levels, couples will need approximately $300,000 to cover health expenses in retirement if living to average life expectancy, and as much as $550,000 if living to age 95.

As health insurance costs have gone up, a new type of plan — the high-deductible health plan — has been designed for people who don't have a current, frequent need for health care but still want insurance coverage in case something happens. Because the premiums are lower (15 percent to 45 percent lower than other plans) the plan carries relatively high deductibles. But, to help pay these deductibles, the federal government has created legislation that lets people establish a tax-advantaged account known as a health savings account, or HSA.

A HSA combines an individual's current health insurance plan with a tax-deductible savings account. Small-business owners who offer a high-deductible plan as an employee benefit could also use a HSA. Proponents of HSAs believe they are important because they help reduce the growth of health care costs and improve the efficiency of the health care system.

HSAs were created to encourage people to save for future health care expenses and adopt high-deductible health plans, which make clients more responsible for their own health care choices. In 2007, 3.2 million people were covered by HSA-type insurance plans. This growth is predicted to continue: 14 million HSA policies are expected to be opened by 2010.

Talk to your financial adviser about putting a plan in place that takes into account the effect health care might have on your retirement.

Ann Cooke is a financial adviser with Smith Barney in Olympia and can be reached at 360- 943-2300. Her Web site is www.fa.smithbarney.com/cooke.