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The ABCs of Health Care in Retirement

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Health care costs can have a pronounced impact on a retiree's financial situation. In fact, a 2013 ING U.S. Retirement Experience study found that paying for health issues was the biggest unexpected challenge for retirees.

Many pre-retirees assume that when they turn 65, they simply jump on Medicare and are done with retirement health decisions. In fact, there is legwork leading up to and during retirement to make sure retirees have the right coverage for their health situation. It is often a hard wake-up call when retirees learn that Medicare does not pick up all medical expenses. There are deductibles, prescription costs and other expenses that need to be paid out-of-pocket. These can quickly add up and bite into retirement savings.

These costs are not something that can be avoided either. Average health care expenses in retirement are an eye-popping $365,000 for men and $417,000 for women, according to the Insured Retirement Institute 2012 Health Care Expenses study. In addition, 40 percent of retirees have dealt with a major medical illness in the last five years, according to the ING U.S. study. Having a strategic plan for healthcare in retirement is as important as figuring out where you're going to live, how you will spend your time and whether your savings will last your lifetime.

Three month prior to turning 65, individuals should start to do homework on health care options. This homework most often centers on reviewing different Medicare options. All retirees will need to understand the basics of Medicare. Take time to do research before retirement on the details of the different plan options and how your specific ailments will be covered under each option.

Doing homework can make a big difference in helping with retirement readiness. For example, I work with a 63-year-old client with an illness that requires non-urgent surgery. His current health care plan through his employer does not cover the procedure. In researching options, we determined that when he turns 65, there are Medicare programs that will cover the procedure. With his doctor's approval to wait, our planning saves him around $50,000 in medical expenses. These savings will now continue to work for him to help fund his retirement.

Start by understanding what Parts A, B, C and D of Medicare each do. Part A covers hospital or nursing facility stays, Part B covers doctor visits, outpatient services and preventative care for a premium while Part D is the prescription drug plan. Part C is the Medical Advantage program, which is an alternative to traditional Medicare. Part C is offered through private plans and may offer more benefits and/or lower copays for a premium. This option may be most appropriate if your health situation is more complicated.

Along with studying each of the plan option, be aware of your personal health conditions. Know your specific prescriptions, treatments and any medical specialists you'll require in retirement. Some situations may be covered, others may not and some may have deductibles or caps that require out-of-pocket payments. This process is not easy; it takes time and critical thinking to get to the nuts and bolts of what plans do and do not cover and what is best for your situation. Remember that every year in retirement you have the chance to re-assess and change your health care coverage if needed.

Health care decisions in retirement are complex. Beyond Medicare decisions, retirees may want to consider long-term care insurance, flex-spending accounts and deferred taxes on health care costs. Other factors that can impact your health and finances in retirement are the family support network and lifestyle. Think about who is going to be there for you if a health issue arises and what type of exercise and diet habits can help you to live the healthiest live possible in retirement.

To continue exploring this topic, you may want to speak to a financial advisor who can help with your retirement readiness and the financial aspect of your health care in retirement. In addition, there are useful resources online, particularly at ElderCare.gov or AARP.org.

ING Retirement Coach Jacob Gold is a third generation financial advisor. He is a published author of "Financial Intelligence; Getting Back to Basics after an Economic Meltdown", which was published in August 2009. Gold is a CERTIFIED FINANCIAL PLANNER™ practitioner and Series 7, 24 and 66 securities registered.

Securities and Investment advisory services offered through ING Financial Partners, Member SIPC.

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