Watch Out for This Retirement Pitfall

When you're planning for retirement, you don't exactly have a crystal ball that will accurately predict your future. Therefore, it can be practically impossible to foresee all of the possible scenarios which could occur once you stop working. But it may be possible to safeguard your retirement to a reasonable degree, by preparing for some of the most common retirement problems.

A recent Fidelity study uncovered a potential pitfall for retirees: The average couple retiring this year will face $220,000 in out-of-pocket heath care expenses during their retirement. Since that's not small change for the overwhelming majority of Americans, it represents a serious expense that we need to take seriously.

Why is the estimate so high? There are two reasons. For one thing, people are living longer these days, due to better nutrition, health care, and preventive medicine. And of course, we've seen a sharp increase in the cost of health care in recent years. The end result may be that you could spend more on health care each year, and you may have more years to rack up medical bills.

Medicaid eligibility begins at age 65, but due to limited coverage you may need to purchase supplemental insurance. If you had planned to retire at age 62, you need to make sure your health care expenses will be covered for the next three years. Otherwise, you could end up needing to take more money than you had planned from your retirement account, and your retirement income will be impacted for the rest of your life.

One way to address the problem of health care costs in retirement may be to simply not retire when you had planned. At the moment, leaving your job may also mean abandoning your health care plan. Even if your company does offer retiree health care benefits, the premiums and co-pays may be surprisingly expensive. By working three more years until age 65, you maintain your current health insurance coverage, and you also have three more years to pay down debts and save for a more comfortable retirement.

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