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Health care: Retirement's wild card
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My dad, a former union worker, was promised benefits for the rest of his life. But his former employer had undergone so many permutations (after repeated mergers and acquisitions) that somehow the promise was forgotten for awhile. Suddenly his only option was to come up with a $500 monthly premium or drop coverage. His coverage has since been restored, after a couple of years with no company benefits, but who knows how long he will have these benefits?

The problem is, nobody knows. Look what's happening in the auto industry. United Auto Workers recently scrambled to renegotiate health benefits that General Motors had promised to its retired work force. The union did this in an effort to avoid the unthinkable -- the evaporation of these benefits if GM goes broke. The other two U.S. automakers are expected to follow suit in the reneging, I mean renegotiating, of benefits.

Financial analysts figure health-care costs add $1,500 to the price tag of each American vehicle sold. This puts U.S. automakers at a disadvantage when pitted against foreign competition. (This and other factors, such as the foolhardiness of manufacturing gas-guzzling trucks and sport utility vehicles.)

What can you do?
Planning for heath care in retirement is a little like planning for a natural disaster. You can only do so much and then you hope for the best.

The most obvious thing you can do now is take good care of yourself. Stop smoking. Eat foods that are good for you -- lots of orange, red and green vegetables and fruits of different colors. Exercise daily for at least 30 minutes to keep your body working at optimal levels. And don't forget to set aside at least 20 minutes each day for spiritual and emotional nourishment, relaxing through meditation, yoga or prayer -- whatever works to keep your nerves steady and your outlook positive.

As for setting aside extra money for health-care costs in retirement, well, yeah. Do that, too. How much? That survey I mentioned earlier indicates that 52 percent of pre-retirees expect to spend less than $300 a month on expenses related to health care, but the average retiree actually spends $640, slightly more than twice that amount. If you want to plan for a monthly payment of $640 for 20 years, assuming you earn a 6-percent return annually, you'd need a lump sum of about $89,000 to start with. If you assume earnings of 5 percent a year, you'll need $97,000 upfront. These figures don't take into account inflation or the soaring costs of medical care.

It's hard to know how much you -- as an individual -- will need. A couple of years ago I ran across a brochure from a financial services firm that provided an idea of how heavy the health-care burden can be for individuals. Its suggestion: If you have retiree health benefits from an employer, then save from between $37,000 and $750,000 for possible future costs. If you don't have access to such a plan, then have handy between $47,000 and $1.5 million.

See why it's difficult to plan for all contingencies? The margin for error is huge. We can't look to our government for leadership on how to manage health-care costs. Medicare is in big trouble financially, on a fast track to fiscal insolvency. And it's a shame that the United States can't be more like some countries in Europe that provide decent health care to all its citizenry, rich and poor alike.

Yeah, yeah, I know. Taxes are higher in those countries. We live in a society that favors low taxes for the wealthy. I think that's unfair, and that should change.

But in the meantime it's up to us individuals to take responsibility and save as much as we can for our own retirement as well as our future health-care costs. After that, all we can do is hope for the best.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

If you have a comment or suggestion about this column, write to Boomer Bucks.

Bankrate.com's corrections policy-- Posted: Nov. 2, 2005

Next: More stories by Barbara Whelehan
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