In last month's issue, I shared an inspiring story about simple steps you can take to improve both your healthspan and your lifespan; the focus was on your quality of life.  Now let's look at this subject from another point-of-view: dollars and cents.  Actually, given the high cost of medical bills these days, I should say dollars and even more dollars.

The whole point of the strategies and ideas in my newsletters is to help you make every dollar count in all aspects of your rest-of-life, and medical bills can potentially be a significant source of spending in your retirement years.  Because of that, I advocate that you consider investing in your health to be just as important as investing in your 401(k) plan.

With that in mind, let's first look at ...

How Much Money Do You Need to Cover Medical Costs?

Fidelity Investments recently published the results of an analysis that showed an average 65-year-old couple retiring in 2009 would need about $240,000 in the bank to cover all their medical expenses over their lifetimes.  The analysis assumed the couple wouldn't be covered by an employer-sponsored medical plan during retirement.  The total amount needed includes the cost of future Medicare premiums, Medicare deductibles and copayments, and expenses not covered by Medicare, but it doesn't include the cost of dental expenses or long-term care expenses, which would only make matters worse.
 
Given that the average 401(k) balance for people in their 50s and 60s is roughly $100,000, that $240,000 figure is sobering news.  Most people hope their 401(k) balances will pay for more than medical bills, but it looks like 401(k) balances won't even cover that, much less expenses for food, utility bills and other necessities of life.

Before you start thinking you'll never be able to afford to retire, here's good news that should help set your mind at ease.  Prior Fidelity analyses of medical expenses for retirees have shown that of the total amount ($240,000), only 30%, or $72,000, will be spent on future Medicare premiums, and the balance, or $168,000, will be spent only when you get sick and incur medical bills.  So if you take care of yourself and minimize the odds of getting sick, you might not need to have the full $168,000 on hand. 

The odds of contracting the major, expensive diseases of old age--cancer, diabetes, Alzheimer's and osteoporosis--are about twice as high if you live an unhealthy lifestyle compared to a healthy lifestyle.  The odds are even worse for the most expensive and prevalent condition--heart disease.  So doing all you can to take care of your health should be a top priority for you.

Dollars to Doughnuts: A Potential Rude Awakening

Have you heard about the "doughnut hole" in Medicare's prescription drug program?  It has the potential to put large holes in your finances if you're on lifetime maintenance prescription drugs.  Let's take a look.

In 2006, Congress introduced Medicare Part D, which is intended to cover the cost of prescription drugs.  Coverage is optional and requires a monthly premium, depending on the plan you choose; premiums commonly range from $25 to $40 per month.  But the standard design for Part D benefits only provides meaningful benefits for catastrophic drug claims, as shown on the following table:


For Drug Costs                                       Total Potential Out-of-Pocket
Costs Between    You Pay      Up To    Costs (not including premiums)

$0 and $295            100%        $295                      $295
$295 to $2,700          25%        $601                      $896
$2,700 to $6,154     100%     $3,454                   $4,350
Over $6,154                5%    No limit      $4,350 plus 5% over $6,154

Now suppose you're on lifetime maintenance drugs for high blood pressure, high cholesterol, diabetes or some other chronic condition.  While you're actively employed, it's likely your medical insurance plan at work will pay for most of the cost of these drugs.  Once you retire and are no longer covered by medical insurance from your employer, however, you face some sobering news.  Look at the last column of the above table: Under standard Medicare Part D benefits, your annual out-of-pocket costs could easily be $1,000, $2,000 or much more, not counting the monthly premiums, which can add another $300 to $500 per year.  You might be able to buy prescription drug coverage that's more generous than the standard design, but that will cost a lot more in premiums.  All this money might be better spent elsewhere--but only if it's safe for your health.

The Good News

Many of the conditions that require lifetime maintenance drugs are the result of poor lifestyle choices and habits, like eating the wrong foods and too much of them, smoking or not exercising.  Don't get me wrong: I know that in many situations, lifetime maintenance prescription drugs are lifesavers and may be the only solution to a serious health problem.  However, I also know of many people whose doctor has taken them off these drugs because their test results show they're now in a safe range as a result of lifestyle improvements they've chosen to make. 

Good news: There are two things you can do immediately to start saving money on your medical expenses.  First, ask your doctor about generic drugs or alternative prescriptions that might be cheaper and yet still work for you.  Second, shop around, because prices vary significantly for the same drugs at different pharmacies (see www.destinationrx.com and www.crbestbuydrugs.org for shopping tips and help).

A longer-range solution is to ask your doctor about participating in a medically supervised lifestyle program to safely wean you off lifetime maintenance drugs; addressing such issues as high blood pressure, high cholesterol, smoking or obesity with a doctor's help can improve your health and help you save money. 

More good news: Don't forget about the things you can do on your own.  In my last newsletter, I offered a few tips that can help you improve your health:

• Eat the right amounts of food, and consume lots of fresh fruits and vegetables.

• Have a "plant based" diet vs. a "meat based" diet.  

• Keep your weight at a healthy level.

• Get plenty of exercise.  

• Learn how to manage your stress.  

Adopting a few simple changes can have a significant effect on your health.

Invest in Your Health 

The money you contribute to your 401(k) plan today might not be spent for 10, 20 or 30 years; the benefits of investing are long-term.  But you'll get more immediate results with investments you make in your health!  By investing in your health, you have the ability to significantly reduce your long-term costs for medical expenses--that's the financial reason for taking care of your health.  The bonus?  You'll start looking and feeling better today! 

What do I mean by investing in your health?  I'm simply referring to the things you can do on a daily, weekly or monthly basis that positively affect your health.  To learn more about healthy nutrition, exercise and stress reduction, take the time to visit the Resource Center on my website www.restoflife.com, which offers lists of helpful books and websites on finances, health and lifestyle.  Then, find the motivation to make healthy improvements in your lifestyle.  For some people, the motivation comes from improving their quality of life; others need the motivation to save money.  This month's video highlight offers some inspiring stories about people who've taken care of their health and benefited greatly from it--check it out! 

Whatever works for you, I hope you'll join me in the quest to make every dollar count during our rest-of-life, and find better things than medical bills to spend our hard-earned retirement savings on.
 


 

PS.  If you think this newsletter will help a friend, please pass it along.