How to Deal with the Financial Impact of a Critical Illness
Some things in life aren’t in our control. Anyone can face a sudden critical illness, even those in seemingly good health. And though the financial impact of a critical illness may not be entirely in your control, you can help put yourself in a better position by being proactive.
Planning for the financial impact of a potential illness not only can save you from having your personal finances and retirement plan derailed, but it can also give you one less thing to worry about if you need to fight to recover from an illness.
On average, a 65-year-old couple needs an average of $285,000 to cover health care and medical expenses, finds Fidelity. And dealing with a chronic condition or a critical illness such as heart disease or cancer could potentially lead to even more costs. You can plan to minimize health care costs through:
Health insurance: To avoid significant out-of-pocket expenses, you need quality health insurance. Depending on your financial situation and health status, you may want to opt for more comprehensive coverage if your employer offers multiple options.
Medicare recipients may also want to add supplementary insurance to cover any gaps. Even though you would have to pay more in monthly premiums, you may decide that the cost is worth it to reduce the risk that uncovered claims will eat away at your retirement savings.
Long-term-care insurance: In addition to traditional health insurance, you might want to consider buying long-term-care insurance. For example, Medicare has limits on long-term-care coverage and, in most cases, doesn’t cover it at all.
Yet long-term-care services, such as assisted living facilities, can be more expensive than most people can reasonably afford with their retirement savings. So an insurance policy may be worth the investment to reduce the risk of insolvency.
Our Roseville-based wealth management firm helps clients understand their long-term-care options as part of their overall financial plan. Consider talking with a fiduciary financial planner who understands your entire financial picture to choose what makes the most sense for you.
Health savings account: Aside from insurance options, you might want to set savings aside to help cover the financial impact of a critical illness. Using vehicles like a health savings account (HSA) can help.
Keep in mind that not everyone can contribute to an HSA; you need to have a high-deductible health plan and not be enrolled in Medicare.
If you do have access to an HSA, then you can contribute up to $3,550 for calendar year 2020 as an individual or $7,100 if you have a family health plan. Those age 55 and over can contribute an additional $1,000 in catch-up contributions (or $2,000 if both you and your spouse are 55-plus).
Best of all, you can put tax-deductible money into the account, let it grow tax-free, and then withdraw it tax-free to pay for medical expenses. You also can let your contributions roll over from one year to the next. This makes an HSA a potentially powerful tool in managing the financial impact of an illness.
Emergency savings: While vehicles like HSAs can help you save more to cover different types of health care costs, not everyone has access to these accounts. Alternatively, you might want to put aside an emergency fund to cover what your HSA and medical insurance would not. As such, you could earmark a portion of your savings as a health care fund to cover those costs.
A Financial Balancing Act
While leveraging these insurance and savings options could help you minimize the financial impact of a critical illness, you want to plan for these potential expenses in a way that still leaves you with enough money to enjoy your life.
Working with a financial planner can help you build a cushion into your retirement savings accounts or brokerage accounts to help absorb health care costs.
A financial planner can also help you assess insurance options in the context of your overall financial plan. We recommend you work with a fee-only, fiduciary financial planner who doesn’t accept commissions so that you know their recommendations put you first.
As a fee-only, fiduciary Registered Investment Advisor in Roseville, we help individuals and families throughout the Sacramento Area prepare for both the expected and unexpected as part of a comprehensive financial plan.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country's leading professional association of fee-only financial advisors.