As you plan your retirement, you’re meticulous about everything. You started a Roth IRA as soon as possible. You jumped on your employer’s 401(k) match. Still, there may be one aspect of retirement planning you’ve overlooked — and if you don’t address it now, you could run out of money in your golden years.
For You: Dave Ramsey Warns: This Common Habit Can Ruin Your Retirement
Learn About: 3 Advanced Investing Moves Experts Use to Minimize Taxes and Help Boost Returns
Longevity sounds like a good thing. After all, who doesn’t want to live a long time? But if you haven’t factored longevity into your retirement, you could outlive your savings. According to many financial experts, longevity can come with a major expense that drains your savings faster than you expect — one you might not think about while you’re younger and healthier — and that’s health care.
GOBankingRates spoke with Michael LaCivita, a certified financial planner with Domain Money, and Whitney Stidom, vice president of consumer enablement at eHealth Inc., to learn more.
As retirees live longer than ever before, they’ll need more money to maintain a high quality of life, including access to healthcare and long-term care. While staying active and healthy throughout life is important, there are certain things you can’t control — such as a family history of chronic conditions or sudden illnesses and injuries — and you need to be financially prepared.
“Costs for healthcare can fluctuate widely depending on condition and care throughout one’s life,” LaCivita said.
He added that investors should recognize this reality when strategizing for retirement. “One of the key mistakes investors make as they enter retirement is getting too conservative too early with their investment allocation,” he said.
Read Next: The Roth Conversion Mistake That Could Cost You Tens of Thousands — and How To Get It Right
LaCivita said the traditional 60% stock and 40% bond portfolio for retirement was developed and popularized long before today’s retirement realities.
“This portfolio recommendation never anticipated retirees living into their 90s and the costs of assisted care or memory care, which can range from $12,000 to $20,000 per month,” he said.
He suggests maintaining a more equity-weighted portfolio through most of retirement, since equities have historically provided higher returns than a 60/40 portfolio — which can allow for greater asset growth and contributions later in life.
Story Continues
“Planning for increased volatility in one’s retirement portfolio can be accomplished with additional short-term cash holdings earmarked for emergencies, kept in high-yield savings accounts or money market accounts,” he said.
If anyone is aware of the perils of overlooking healthcare expenses in retirement, it’s Stidom.
“Healthcare is one of the most commonly overlooked expenses in retirement — and it can be a major financial shock even after people become eligible for Medicare coverage,” she said. “In fact, 76% of Americans underestimate what they’ll spend on medical care in their later years.”
To avoid unexpected costs, she encourages retirees to make proactive, informed decisions about Medicare coverage related to prescriptions, preferred doctors and chronic condition management.
“These choices can make a big difference in keeping retirement budgets on track, while potentially saving Medicare beneficiaries more than $1,800 per year on out-of-pocket costs,” she said.
Stidom shared three additional tips for effectively managing healthcare costs before they become a burden.
“A growing number of people are opting for Medicare Advantage, which now provides coverage for about 50% of Medicare beneficiaries,” she said. “But choosing a Medicare plan can be complex, given the average beneficiary has more than 40 Medicare Advantage plans to choose from in their local area.”
Working with a financial adviser can help you choose the right plan — and Stidom advises shopping for plans that match your personal needs and budget during the fall annual enrollment period.
“People who comparison shop for a Medicare Advantage plan can potentially save more than $1,800 a year,” she said.
“For the 68% of Medicare beneficiaries with at least one chronic condition, it may be helpful to evaluate a chronic special needs plan (C-SNP),” she said. “These plans, which are surging in popularity, can help lower prescription medication costs and offer additional benefits specifically designed for people with qualifying chronic conditions.”
She added that these plans can improve coverage for conditions such as diabetes by covering blood glucose monitoring supplies or offering access to lifestyle support programs.
“This additional coverage and support can help translate into lower healthcare expenses and potentially improved well-being,” she said.
Stidom noted that comparing plans can lead to better savings on prescription medications.
“While many Medicare Advantage and Part D plans provide prescription drug coverage, each has a different list of medications they cover — and at different cost-sharing tiers,” she said. “Medicare Advantage beneficiaries who shop around can save more than $800 per year on prescription costs — all while keeping coverage for the same or equivalent medications.”
It’s time to think about potential longevity and healthcare costs as seriously as you’ve considered other financial aspects of your retirement. Overlooking this key factor in your senior years could cost you — and it doesn’t have to.
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
More From GoBankingRates
This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: This Is The Number One Factor Retirement Clients Overlook