Managing Post-Retirement Risks: Unexpected Health Care Needs and Costs

Unexpected health care costs are a major concern. Employers continue to cut back on post-retirement health care benefits. Low-income retirees may spend a large percentage of their resources on health care. Medicaid does provide assistance for the poor.

Medical technology improvements that extend life may increase care costs.

Uncertainty over implementation of reform measures is hampering current retirement planning.

Predictability

Health care costs are:

• Relatively easy to predict for a large group over a limited time.
• Hard to predict for individuals.
• Very hard to predict far into the future.

However, the cost and benefit structure impacts of health care reform should be more predictable now that the new health care reforms are fully implemented.

Managing the Risk

Medicare is the primary source of coverage for post-65 retirees. Supplemental coverage is available from employer plans and individual Medigap policies or HMOs.

Other federal or state/local programs may assist low-income retirees.

Instead of retiring from a job with health benefits, employees may choose to keep working, at least part-time, in a job that will allow them to remain covered.

Wide varieties of "discount benefit plans" are available for typical non-covered services such as dental or vision care. Regulators have had to clamp down on marketing practices to keep consumers from mistaking such discount arrangements for insurance coverage.

Medical travel or even migration to other countries has gained popularity as a way for consumers to reduce their cost for care. Costly surgery covered in the United States by normal insurance is available elsewhere at lower out-of-pocket cost, although there may be added risk.

Conclusion

Future resource requirements are hard to predict because a high level of uncertainty exists about the future design of Medicare and other changes in health policy and operation of health exchanges.

In a typical group, a small percentage of individuals usually account for a large percentage of the group's overall health care costs.

It's not too late for retirees to reduce their risk of major health problems by lifestyle changes involving diet, exercise, smoking, etc.$

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Managing Post-Retirement Risks: Employment

Many retirees plan to supplement their income by working at a bridge job part-time or full-time.

Today's jobs often make few physical demands and may even be done at home. Some organizations prefer to workers because of their stability and life experience. But success in the job market may also call for technical skills that retirees cannot easily gain or maintain. Training and retraining have become increasingly important for those who want to work at older ages.

Predictability

Employment prospects among retirees vary greatly because of demands for different skills, and can change with health, family or economic conditions.

About half of all retirees retire earlier than planned, often because of job loss or poor health.

Managing the Risk

Retirement plans rarely allow for phased retirement, so a bridge job usually means working for a new employer. Re-hiring of retirees also is growing more common. These kinds of jobs often have lower pay or benefits.

Postponing retirement may be the most powerful way for workers to improve their retirement security. This allows retirement savings to keep growing while the workers accumulate more benefits from Social Security and retirement programs. Medicare-eligible retirees can take a job knowing that they will have health care coverage, even if the employer does not offer it.

Conclusion

Retirement planning should not rely heavily on income from a bridge job.

Many retirees welcome the chance to change careers and move into an area with less pay but more job satisfaction, or fewer demands on their time and energy. However, it may be difficult to find jobs in tight employment markets.

Terminating employment before age 65 may make it difficult to find a source of affordable health insurance before Medicare is available. Note that COBRA coverage usually ends after 18 months (36 months if disabled). As of 2014, health care coverage is available through state exchanges (most states).$
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Managing Post-Retirement Risks: The Stock Market

Stock market losses can seriously reduce retirement savings. But common stocks have substantially outperformed other investments over time, and thus are often recommended for retirees' long-term investments as part of a long-term investment mix.

Predictability

Individual stocks rise and fall based on the outlook for the stock market and the specific company. Individual stocks are more volatile than a diversified portfolio.


Stock index funds are diversified, but they still are exposed to the ups and downs of the stock market.


Managing the Risk

Stock market investors should diversify widely among investment classes and individual securities, and be prepared to absorb possible losses. Because it may take many years to recover losses, older employees and retirees should be especially careful to limit their stock market exposure.


A variety of polled investment "funds" exist, ranging from mutual funds and exchange-traded funds to managed accounts to hedge funds.


Hedge funds, which are private investment funds that participate in a range of assets and a variety of investment strategies, may offer some protection, but they can be complex and have high expense charges.


Stock funds offer opportunities to invest in both U.S. companies and international stocks.


Conclusion

Some financial products let an individual invest in stocks and guarantee against loss of principal. However, expenses on these products may be high, and the financial firm may limit losses by shifting most funds to bonds, thus reducing the stock exposure.


Younger workers can afford to take more risks because they have time to make up short-term losses and can postpone retirement. Older individuals might want to allocate a smaller proportion of assets to the stock market.


Target-date (or "life-cycle") funds gradually shift some of their assets out of stocks as the investor gets older. In target-date funds designed by different fund managers, the allocation to stocks at a given age varies. Proposed regulations would increase disclosure to consumers about target-date funds to bolster understanding of what these funds do and don't do.


When significant personal assets are in company stock, the risk of job loss is compounded by possible loss of savings if the company does poorly or goes out of business. Even if a company appears strong, it is safer to diversify those assets among other investments.$


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