Health and Finances: How to Save Money as You Get Older

health and finances

Unfortunately, as we age, our health and finances become inextricably intertwined. Surveys show that nearly one-quarter of all health expenses are incurred during the last three years of life. Since these health expenses are spread out over multiple years, economists believe these expenses are driven primarily by senior care and management of chronic conditions rather than last-ditch efforts to save dying patients.

People can take steps during their working life and during retirement to improve both their health and finances. Here are ten ways to maintain your health and finances to prepare for the future:

Save When You Can

As people age, they rely on a few sources to pay for healthcare. Some sources include:

  • Savings: Putting money away during your working life can provide a financial cushion later in life. The benefit of savings is that you have total control over the amount you save and, since savings are after-tax dollars, you do not need to pay taxes on savings withdrawals.
  • Social Security: Social Security provides a steady stream of income to Americans of retirement age. The drawback of Social Security payments is that these payments are taxable by the federal government and many states. Moreover, the eligibility age and amount of benefits fluctuate because of funding issues.
  • Retirement accounts: Retirement accounts have benefitted many Americans since ERISA became law in 1974. IRAs, Roth IRAs, 401(k)s, and SEP IRAs are subject to a complex set of rules about how and when withdrawals can be made and whether taxes and penalties are owed on the withdrawals. Thus, a disadvantage of retirement accounts are that you might require income tax preparation services to avoid a big tax bill when you need to take a distribution.
  • Health insurance: Private health insurance and Medicare are available to pay for health services late in life. The drawback to health insurance is that it does not always cover every service you need and may require a co-pay for covered services. As a result, you may still need a source of money to pay out-of-pocket expenses.

The lesson you can draw from this is that whether you save money in a savings account or a retirement account, saving some money is necessary to make up for shortfalls and out-of-pocket expenses that will not be covered by Social Security, Medicare, and private health insurance. Without some savings, your health and finances might dwindle together.

Stick to a Budget

Of course, saving money is often easier said than done. Nearly 70% of U.S. residents have less than $1,000 in savings. As a result, most Americans are one car repair or medical emergency away from having to visit bankruptcy attorneys.

health and finances

A time-honored way to save money is to develop a budget and stick to it. During difficult times, like unemployment or a pandemic, the budget might be difficult to stick to. However, during good times, sticking to a budget ensures that you do not overspend and put savings away for a rainy day.

Some keys to maintaining a budget include:

  • Be realistic: A realistic budget is easier to stick to than an unrealistic budget. Make sure you include all your expenses and avoid including speculative income, such as a year-end bonus that may or may not come.
  • Include entertainment: Include rewards for yourself like travel and entertainment. This will ensure that your budget accurately reflects your spending habits and gives you a goal to work toward.
  • Control your debt: Debt is a useful tool to smooth out your cash flow and provide a cushion for emergencies. However, over-reliance on debt can jeopardize your financial health. Interest payments accumulate quickly and falling behind on loans and credit cards can create a negative credit history that will hamper your future financial flexibility.

Pay Off Your Home

For most Americans, their home is both their biggest expense and their biggest source of wealth. The value of a home almost always increases over its lifetime and, even for older homes that require repairs or renovations, the land they sit on has value.

However, until the home is paid off, it is a liability. The monthly mortgage payments must be made or you risk foreclosure.

Paying off your home has a number of benefits:

  • Your monthly living expenses go down drastically. Without rent or mortgage payments, your housing expenses are limited to property taxes, home maintenance, and the occasional repair such as inground pool repair.
  • Your equity can be used as an asset for a loan. When you need medical treatment or incur other health-related expenses, you can take out a home equity loan or home equity line of credit. This allows you to use your home to access credit without selling the home.
  • If you need to leave your home for an assisted living center or nursing home, you can sell your home for an immediate cash influx. This can help you get set up at your new home and ensure your health and finances can be taken care of.

Consider a Health Savings Account (HSA)

You can fund an HSA with pre-tax dollars and withdrawals for qualified health expenses are tax-free. Importantly, almost any health expenses can qualify under an HSA, including chiropractic adjustment techniques and over-the-counter medicines.

health and finances

Moreover, the balance in the HSA grows tax-free. So, for example, if your HSA is in an interest-bearing account, the interest your earn on your HSA will not be taxable.

However, the best part about an HSA is that the account rolls over from year to year and you can continue to contribute to the HSA. This means that, as the law is currently written, you could have a substantial amount of money saved up in your HSA when you finally need it.

On the other hand, the drawback of an HSA is that you must be enrolled in a high deductible health insurance plan to be eligible for an HSA. This means that you are gambling with your health while you are young. If you get sick or have an accident while you are on a high deductible health insurance plan, you might need to drain your HSA to pay for medical care.

Thus, whether you use an HSA to save for the health care expenses you will incur in your later years depends heavily on how healthy you are in your youth. If you are very healthy, you should be able to use a high deductible health insurance plan with relatively low risk. This essentially allows you to defer your healthcare spending from your youth into your later years.

Practice Preventative Medicine

You can improve your performance on an HSA and save your healthcare dollars by using preventative measures to improve your health and reduce your risk of illness. Some of the steps that can have a big impact on your health and finances include:

  • Avoid illegal drugs: Street drugs expose users to communicable diseases like hepatitis and HIV. Moreover, addicts are more likely to suffer from homelessness and all the health problems that come from it. However, the greatest risk from an opioid addiction is overdose. Overdose deaths in the U.S. continue to rise from the record levels reached in 2019 of 72,000 deaths.
  • Eat healthy: Nearly two-thirds of Americans are either obese or overweight. Being overweight is a significant risk factor for many health problems like heart disease, high blood pressure, diabetes, and some cancers. By controlling portions, cutting down sodium and sugars, and increasing fruit and vegetables in the diet, you can control your weight and ensure that you are consuming all the necessary nutrients.
  • Exercise: Just 75 minutes of exercise per week is sufficient to improve your health. This means that three 25-minute walks every week can help you work off calories, moderate your blood sugar levels, and build muscle that burns energy more efficiently. Exercise can reduce blood pressure, improve your heart health, and improve your balance so you are at lower risk of falls.
  • Get immunized: While flu shots are important every year, in 2020, a flu shot is essential. Contracting the flu can lead to many respiratory problems. But most importantly, in 2020, a trip to the hospital for flu will expose you to COVID-19 and all the short term and long term risks associated with it. However, flu vaccines are generally 40-60% effective in preventing the flu, so a flu vaccine might be the best way to avoid both flu and COVID-19.

Be Safe

health and finances

Accidents are always among the top five causes of death in the U.S. Whether you are injured at work, in traffic, or at home, accidents can have long term health consequences that can affect your entire life. On the other hand, avoiding major accidents can help you reduce your need for healthcare services as you grow older and preserve your healthcare dollars for when you really need them.

Some ways that you can stay safe include:

  • Avoid distracted and drunk driving: Traffic accidents are some of the most common causes of accidental deaths and injuries in the U.S. This has become such a problem that many states are passing distracted driving laws and tightening the penalties for drunk driving. However, the main reason to avoid distracted and drunk driving is to avoid the long term effects of accidents like chronic injuries, physical therapy, and long term disabilities that will require care in your later years.
  • Use safety equipment at work: Work injuries may be common, depending on your chosen line of work. For example, construction workers for a fencing company might have a higher rate of work accidents than office workers. However, in either case, you should use the prescribed safety equipment for your work. Avoiding long term injuries like carpal tunnel syndrome or acute injuries, like a fall, can affect your health and finances into your senior years.
  • Avoid home accidents: Accidents at home can also lead to long term health problems. For example, slipping in the bathroom, falling down the stairs, or suffering a burn can leave you with problems you will deal with as you continue to age. Installing a non-slip surface in your shower, keeping the carpet on your stairs in good repair, and changing the batteries in your smoke detectors are steps that you can take to make your home safer and preserving your healthcare dollars for your later years.

Review Your Insurance Situation

Every insurance plan is unique. As you approach your senior years, you will need to insure against different risks than when you were younger. For example, long term care insurance or a health insurance policy with coverage for long term care can be essential for your health and finances in your senior years.

For example, Medicare does not cover long term residential care under most circumstances. To have insurance pay for nursing home care or residential assisted living, you will likely need private health insurance, long term care insurance, or supplemental Medicare insurance. Without these, you might have to pay a co-pay of over $100 per day for residential care under Medicare.

To ensure you can have a comfortable location for aging in place, it may be worthwhile to review your insurance situation with a financial planner. Financial planners can help you estimate your healthcare needs as you age. Although everyone’s situation is different, many people underestimate their healthcare expenses by 30-50%. For example, many people estimate their post-retirement healthcare expenses to be around $100,000. However, studies show that most people will spend at least $130,000 in healthcare expenses after retirement and many spend much more than that.

Moreover, as people live longer after retirement, they will spend a longer time in long term care facilities. For example, 52% of seniors who enter long term care facilities will spend more than one year there and about 35% will spend at least two years in the facility.

health and finances

By planning ahead for contingencies like long term care, you may be able to find an insurance policy that will provide some coverage for long term care while not breaking the bank. This will allow you to preserve both your health and finances in case you need long term care.

Develop an Estate Plan

Estate planning benefits more than just your heirs. Estate planning can help you ensure that your health and finances are protected as you age. Specifically, you should consider consulting an estate lawyer about putting your assets into a living trust. A living trust is a legal structure that holds your property for your benefit during your lifetime and distributes your property after your death.

The benefit of a living trust for your health and finances as you age is that the trust can control your assets for you if you are ever incapacitated. Thus, if you develop dementia, chronic illnesses, or long term disabilities, your assets will be available to take care of you even if you are unable to manage your finances on your own.

Planning for healthcare after retirement is not easy, but it is necessary. Without planning, you risk both your health and finances if you don’t have a plan. But more than planning, you will need to execute on the plan early.

Again, this can be difficult, particularly since you will need to start planning for retirement when you are still in your 20s. However, this is where a financial advisor can provide assistance since they have insight into these issues.

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