Aside from the obvious benefits, such as avoiding hospital waiting rooms and enjoying better quality of life, being health-conscious is good for our pocketbooks.
Fewer visits to the doctor mean lower copays and deductibles. So theoretically, staying healthy saves money.
Except that isn’t necessarily the case.
The answer may be summed up in the first line of a recent Wall Street Journal article on this topic: “The healthier you are, the more money you will need to save for health care in retirement.”1
The article was based on a new white paper by W. Van Harlow of the Empower Institute, which highlights how “health costs and associated mortality projections often have interesting and counterintuitive effects on retirement planning.” This basically means that even though the costs associated with certain conditions, such as high blood pressure and diabetes, can be high, the “net effect of shorter lifespans is that less savings will be required for retirement.” 2
Or put another way – living longer equals higher health care costs.
This contradiction is a topic we have discussed before. Individuals with longer life expectancies will eventually need more medical services over time. They are also more susceptible to the effects of rising health care inflation and costs associated with long-term care.
The Empower paper draws upon HealthView data and examines the financial impact of very specific
disease states. Let’s look at the health care costs for two 65-year-old males: one healthy, the other with diabetes. Our data shows the healthy male with a longer life expectancy will need $144,000 to fund future costs, while the male with diabetes will only need $88,000.
At this point, it’s worth asking the very rational question: Why is this important?
Here’s why it matters. If you have a chronic health condition, you may not need to save as much as someone who is healthier and can expect to live longer – at least from an actuarial perspective.
The point is: once a person knows projected future medical expenses based on his/her personal health status, an informed decision about how much to put aside to cover this critical need can be made. Importantly, as we have seen from our clients, when people know how much health care will cost in retirement, they increase their savings.
Emotionally, some of you may be thinking: If living longer is going to cost this much, maybe I should just double up on the French fries and skip the gym.
Absolutely not. The longer you are fit and healthy in retirement, the less you will spend each year, but the more you will need over your lifetime.
That seems like a pretty good trade-off.
It’s never too late to adjust spending habits to account for longer life spans. Perhaps, instead of just strolling around the neighborhood, take a brisk walk to the bank and put a few extra dollars per week away. Consider increasing contributions to a 401(k) or take advantage of a health savings account (HSA) with a company contribution if one is available.
Remember that health and wealth have a symbiotic relationship. In order to get the most out of retirement, you have to take care of both your body and your bank accounts.
[/vc_column_text][vc_separator color=”grey”][vc_column_text]1 Tergeson, Anne. “Healthy? You’ll Spend More on Health Care in Retirement.” WSJ. N.p., 10 Feb. 2016. Web.
2 Harlow, W. Van, Ph.D. An Apple a Day: The Impact of Health Conditions on the Required Savings for Healthcare. The Empower Institute. January, 2016.[/vc_column_text][/vc_column][/vc_row]