Stock Market Worries are Overblown. Worry About Longevity Instead!

When the stock market reveals its short-term volatility, investors get worried. We can’t help it.

Human beings are hardwired to avoid risk and stick with the herd. Those who wandered too far from the group became a snack for the predators which far outnumbered our distant ancestors. Historically speaking, sticking with the herd ensured our chances for survival.

Successful investing, on the other hand, requires you to swim upstream against millions of years of conditioning. The push and pull between reason and instinct are what make the daily zigs and zags of the stock market so exciting. (The media plays a role in it too.)

While our attention is glued to the stock ticker on CNBC, we are ignoring the real monster under the bed. The biggest threat to our retirement is health care costs.

We don’t know what the future will bring. Will you live to be 110 years old with perfect health? Will you develop a chronic health condition that could get worse over time?

We can’t predict exact variables, but we can look at trends.

Health Care Costs Increase in Retirement

Health care is one of the largest expenses in retirement. The average 65-year-old couple will need an estimated $285,000 (in today’s dollars) for medical expenses in retirement. This does not include long-term care costs for people who need help with daily living activities. It also does not include dental, vision, or extra Medicare premiums for higher-income couples.

Of course, you don’t have to pay the $285,000 all at once. A Vanguard and Mercer Health and Benefits study estimated the average female would spend around $5,200/year on health care costs.

This price tag is manageable within most financial plans but will grow over time. Healthcare prices grew about 16% from 2012 to 2016, about three times the inflation rate.

Retirees are often caught off-guard when health care costs spike after moving from an employer-sponsored plan to Medicare. On average, retirees on Medicare spend 14 percent of their household budgets on health expenses, nearly three times more than people in working households.

In retirement, you will no longer have an employer picking up around 75 percent of the tab. You must plan accordingly for health care in your retirement budget.

Consider a Health Savings Account

Many employed Americans plan for health care costs within their current investment portfolio and retirement savings. However, if you have a high-deductible health care plan, you might also consider enrolling and contributing to a Health Savings Account (HSA).

With an HSA, contributions are not taxed on the way in, or the way out, if the money is used for qualifying health care expenses. Some employers even make their own annual contributions. The contributions can be invested in stocks and bonds, just like a 401(k).

Below are the contribution limits for Health Savings Accounts as of 2019:

Is a Higher-Deductible/HSA Combo a Good Option for You?

It depends. Meet with a financial advisor to determine which benefits strategy will best meet your lifestyle needs. If you do not have enough available funds to cover the deductible and the maximum possible out-of-pocket cost of a catastrophic event, this strategy might not be a good fit for you.

Don’t Forget About Long-Term Care Insurance

People assume health care coverage includes the costs of ongoing care and nursing home stays. It doesn’t.

Long-term care insurance covers the ongoing costs of daily care in the home, community, nursing home, or assisted living facility. About 70 percent of 65-year-olds can expect to need some type of long-term care, according to the U.S. Department of Health and Human Services.

If you are over age 50, it is time to start thinking about this.

Learn more: Do I Need Long-Term Care Insurance?