5 Ways to Prepare Personal Finance Before Critical Illness Happens
No one wants to get sick, but the fact of the matter is as we grow older our bodies become more susceptible to serious and chronic illnesses. Depending on how we lived, where we lived, our genetic disposition and sometimes plain old luck, a good portion of the population eventually deals with a serious illness after age 50.
Thankfully, due to modern medicine and technology, we're able to live much longer than our grandparents from only 40 years ago, but with that advancement comes a cost, literally. The price of medical cures and treatment have grown astronomically, and in many situations, the cure can financially be much worse than the original sickness one came down with. Many seniors and even older working persons face the very real possibility that an illness can wipe out all their savings and even push a person to bankruptcy when the treatment costs hit. That said, there are things one can do to lessen or potentially avoid the hit before the illness occurs:
1. Health Insurance
A solid, comprehensive health insurance plan is a must. If still working, your employer is probably providing for that plan as part of your benefits, but you want to research and confirm how to take it with you at retirement. All of us are required to shift to Medicare at age certain, so you want to research how your plan or options transform when the Medicare change occurs as well.1 In any case, insurance is a must and the primary safety net to offset most costs. Keep in mind though, it won't cover everything and may limit treatments that might otherwise be more effective.
2. Long Term Care Insurance
If you have the option to sign up for LTC, do it. This is a true contingency health plan, as many may never have a need to call on LTC support. However, this coverage provides for care and support outside the initial treatment which is often needed and filled in by family because nobody can afford a nurse's cost up front.2 For critical accidents and illnesses that may make a person incapacitated for a long time, this is a second critical piece in the financial puzzle folks can secure when younger and costs far less now to maintain than trying to sign up when older. And here's an added benefit: the costs of LTC may be tax-deductible!3
3. A Health Savings Account
The HSA is a tax-shelter that allows you to take pre-tax money each year and save it for medical expenses.4 If the expenses are valid, the HSA money saved goes directly to covering out-of-pocket costs from co-pays to pharmaceuticals. This is a key tool people need to utilize when dealing with the gap between out-of-pocket amounts and when Medicare kicks in coverage each year.5
4. Workplace Disability and Social Security Benefits
If an illness makes you disabled, you are entitled to a specific government and employer-paid benefits, so use them.6 Many people don't, feeling embarrassed that somehow they become a welfare recipient. This is baloney. You paid for these benefits out of your payroll withholding, so you have every right to claim these funds when you're sick and been fully employed.7
5. Save, Save and Save Some More
Plain old cash savings and investments are the glue and gap-filler that gives you the ability to deal with all the miscellaneous costs that come up when being sick. And it prevents you from having to raid your retirement accounts for the same. Just saving regularly for 30 or 40 years builds a nice nest egg and safety net that you are in full control of. And despite all the above, there will still be illness expenses that get through. You don't want those to go on a credit card, the common debt-creating alternative most people use in a panic.
Illness and sickness happen; it's part of our human function as our bodies get older. But you don't have to be a train wreck financially when it is time for treatment. Do just the five tips above, and you've fought half the battle before your sickness ever shows up in that first doctor's visit.
Beacon Hill Private Wealth is an independent, fee-only, fiduciary investment advisor providing evidence-based wealth planning solutions that simplify our clients' financial lives. Founder Tom Geoghegan, CFP®, MBA is also a member of the National Association of Personal Financial Advisors (NAPFA).
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