Death and finances are two of the most difficult topics for people to talk about, and when you put them together, you have a conversation that a lot of people avoid at all costs. Yet the fact of the matter is people are living longer. This means you will have more medical expenses and may be taking care of a loved one with a chronic illness for a long time. Additionally, you or your spouse may unexpectedly fall ill or have an accident, which can place a large financial and caregiving burden on your family’s shoulders. As a result, it has become increasingly essential for workers to factor health care costs into their retirement plans. A recent study by Fidelity Investments found that an average retired couple age 65 in 2016 may need approximately $260,000 saved (after tax) to cover health care expenses in retirement. It’s even more critical when your health or that of a loved one begins to fail, as long-term care costs can eat away at your savings very quickly. Below are five tips to help American workers plan ahead for one of life’s unfortunate certainties.
1. Research long-term care insurance.
If you’re working full-time, it’s virtually impossible to personally provide the level of care that a very sick family member or life partner needs. To fill that gap in care, many American workers rely on home health care aides, which can cost between $25 to $35 dollars per hour. If 24-hour, live-in care is needed, that can add up very fast – more than $100,000 over a six-month period – and that doesn’t include medications and additional health care costs. If you or a spouse is at high risk of a hereditary illness, long-term care insurance may be a viable option to help defray those potential costs. While most people traditionally sign up for this type of insurance in their 60s or 70s, if it’s available to them, people are beginning to buy it during their 40s and 50s to secure better rates.
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2. Create a health map.
In many households, one person is in charge of all the finances, which can be a challenge when that person falls ill or unexpectedly passes away. Even if a spouse has access to joint bank accounts or other main sources of income, there are often investment, retirement and other accounts that could be difficult to access if sensitive information is not shared. Adam Schoenfarber, a social worker at New York-based hospice provider MJHS, encourages patients to create a “Health Roadmap,” a folder with all important pieces of financial information, such as passcodes, safety deposit keys, recurring bills that need to be paid, etc. It is important that caregivers are equipped and empowered to keep the family in proper financial standing, which can have an impact on eligibility for Medicaid and other important benefits.
3. Explore all of your health insurance options.
Many people who have incomes above the Medicaid limit believe they are not eligible for Medicaid to help with medical bills, but there may be several options available to them depending on the laws in their state. In some instances, Medicaid will allow you to “spend down” the amount of income over and above the Medicaid threshold, much like a deductible. In New York State, for example, income deposited by disabled individuals into a pooled income trust is disregarded for the purpose of determining their Medicaid eligibility. Individuals can deposit monthly income into this trust and use it to pay regular expenses and bills while medical expenses can be counted separately. This option is advantageous for patients who may be close to the Medicaid requirements but have a high pension income. Before seeking a “spend down” option, people should consult with an attorney to ensure they are following all state laws.
4. Learn about your company’s paid and unpaid time off policies.
Many employees receive some paid family leave, but often the time off permitted is not enough to cover the full length of a loved one’s illness. Some employees use vacation and sick days in order to make up the difference, but even that may not always be enough. Under the federal Family and Medical Leave Act, all employees are allowed to take up to 12 weeks of unpaid leave to care for a family member or spouse. Employers must provide an equivalent job when that employee returns, but it does not have to be the exact same position. For example, a person might be offered a similar role at a different office location. There are also some exceptions to the law, including private businesses with fewer than 50 employees and workers who have not been with their company for one year. Employees will need to determine how to maintain their finances while they are without a regular income as well. Much like long-term disability, short-term disability insurance can be a huge financial help during these times.
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5. Don’t wait. Have the conversation.
The first and perhaps most difficult step to all of the suggestions above is to simply have the conversation. Talk with family members about money, long-term care and death. Assess your needs and discuss financial constraints so that you can build a plan that works for your family. The AARP offers a planning guide with questions to ask, assessment guides and checklists. It can be challenging for any of us to discuss our own mortality, and what that means for those around us, but there is often a sense of comfort that comes with knowing you have provided for your loved ones once you are gone. Moreover, the person who normally handled finances, but feels as though illness is stripping their decision-making power, may regain a feeling of value by taking lead on teaching a partner or legal guardian how to manage the finances. It’s also important to ask your employer about the company’s policies for workers who are helping care for an elderly parent, injured spouse or sick child. For example, does your employer offer a flexible schedule or an extended lunch break?
The earlier you start planning for these types of situations the better off you will be when they arise. Don’t avoid having the talk, because waiting will only make things worse during an already difficult time.