Carolyn McClanahan, MD, CFP, will be a featured speaker at the MACPA’s 32nd annual Personal Financial Planning Conference, scheduled for Oct. 24 in Towson.
Dr. McClanahan’s sessions will be titled “Protecting Your Clients, Protecting Yourself: Creating a Financial Caretaking Plan,” and “Financial Planning at the End of Life.”
Get complete details and register here.
By Carolyn McClanahan, MD, CFP
One consistent worry people have as they approach retirement is the unknown of health care costs. As I’ve discussed before, planning for a traditional retirement is a fallacy, and planning for health care costs takes that fallacy up a notch.
Most consumption in retirement occurs with some regularity – we pretty much know how much we spend on food, shelter, and transportation each month. Other expenses are discretionary and more easily adjusted – vacation, entertainment, and gifts are nice but not necessary for life. Health care is another story.
There are three factors that make planning for health care costs a challenging endeavor:
Many experts try to pin a number on the cost of health care in retirement. This adds to the delusion. Some of the statistics:
So how do you plan for an expense that defies traditional planning? It boils down to one thing – focus on items where you can influence the outcome. What are those items?
Understand your health risks
Predicting your health in the future is like predicting the weather – the meteorologist occasionally gets it right on the money, but most often the weather is somewhat different than what was predicted. Sometimes a tornado strikes unexpectedly or the hurricane goes back out to sea.
So it is with your health. We can generally predict your health based on lifestyle and family history, but the timing is usually off, and once in a blue moon a tornado hits your health in the form of an accident or oddball cancer.
However, understanding your health risks has utility. A great tool to help with this is available at LivingTo100.com. If you live a healthy lifestyle, you may have fewer health care costs early on but may live a long time and develop dementia later. If you are an overweight smoker with diabetes and plan to maintain that unhealthy lifestyle, accept the fact you may have significant health care costs sooner rather than later.
This brings me to the next point – how are you going to respond once you become ill?
What is your approach to health care?
In this age of patient empowerment, one important concept you need to grasp is how you want to utilize health care. A great book that explains this is Your Medical Mind by Drs. Jerome Groopman and Pamela Hartzband. They wrote this book to help people navigate their health care decisions. Some people want a lot of medical care and some people want very little. Understanding your mindset can help you make better medical decisions. I quickly saw this as an excellent tool to help people also make sense of how they will manage health care costs in the future. Stay with me here …
There are “minimizers” who want to be in the doctor’s office as little as possible and “maximizers” who will travel to the ends of the earth to find out why their toe itches. My family tends to be minimizers and we spend very little on health care. If I develop a serious illness with a poor prognosis, I will immediately quit going to doctors, involve hospice early, and have many parties. I recently had a client who had a fairly minor problem and went to three different doctors to get a variety of opinions; that person is a high health care user. Since they are so worried about health care, they actually postponed their retirement so they can continue their high health care spending.
Think about your medical decision-making process. If you know you will be a high health care user, make it a priority to work longer and save more to prepare for those health care costs. If you only go to the hospital screaming and spitting and are okay with bad outcomes, you can take a less aggressive approach. Big warning: I’ve seen many people change their minds on these things once death is really looking them in the face. And this brings us to the next point:
Make certain everyone involved in your health care understands your wishes
When you have the big stroke, end up in the emergency department, and the health care providers install some instrument in every orifice, does your family know your wishes? If not, your family — through love and / or guilt — may do everything to keep you going even though, deep inside, they may worry about decimating the finances. Please have a conversation in advance about what quality of life you desire when you can no longer speak for yourself. If you want “everything” done, prepare financially for this choice. More often, people choose conservative care that keeps them and their families comfortable physically, financially, and emotionally. National Health Care Decision Day is April 16, and The Conversation Project can help you and your family get started so choices aren’t made at the worse possible time.
How much should you save for health care?
Since we don’t know the real answer, I tell people who worry about this to take a three-tiered approach:
I realize these are imperfect answers and this is an imperfect world. I would love to hear your thoughts and questions on something better.
Carolyn McClanahan, MD, CFP, is director of financial planning for Life Planning Partners. She can be reached at Carolyn.McClanahan@gmail.com or Twitter.com/CarolynMcC.