Health Care Can Sink Retirement Savings

May 28, 2003 -- There's a harsh reality faced by many senior citizens -- retirement savings can dwindle fast if you or your spouse gets sick.

A new study, published in this month's Journal of Gerontology, points to the need for retired people to offset health care costs by getting supplemental insurance and/or discount drug plans to add to their Medicare benefits.

"We want to make consumers think about what could happen in the future. ... Illness comes unexpectedly, bringing not only physical pain but also financial burden," lead researcher Jinkook Lee, PhD, a retirement planning specialist and professor of consumer sciences at Ohio State University in Columbus, tells WebMD.

To get a snapshot of this problem, Lee and colleagues interviewed more than 1,500 married people and more than 2,300 single seniors (all were age 70 or older) about their health care costs. They conducted the interviews between 1993 and 1994, and again two years later.

During the two-year period, many married couples lost a significant amount of their retirement savings because of health care costs from a new chronic condition such as high blood pressure, cancer, stroke, or arthritis, she reports.

In fact, 61% of couples with stable health -- and 54% of single adults -- lost at least 10% of their savings to medical expenses. If one spouse was diagnosed with a new medical problem, 67% of couples lost at least 10% of their savings; 45% of couples lost more than half of their retirement savings.

Many single adults lost their savings paying for treatment of pre-existing chronic conditions, Lee says. The majority of single adults -- 60% -- lost at least 10% of their savings this way; 47% of single adults lost at least more than half their retirement savings.

Medicare benefits certainly help seniors with health care costs, Lee tells WebMD. "However, Medicare covers only hospital charges, not the costs of prescriptions or long-term nursing care. That can have significant consequences."

• Buy supplemental insurance to cover health care costs not covered by Medicare benefits.
• Check into medication discount packages for seniors -- either in your insurance plan or through a pharmaceutical company.
• Be mentally prepared. Know that chronic disease comes with aging. Use that information in calculating for retirement savings.
• Get involved. Send a letter or email to your congressmen, encouraging them to support legislation that increases Medicare benefits.
• Take care of your health today, to prevent health problems later.
• Collect your pension as a monthly annuity, to ensure flow of income during your lifetime, to cover basic living expenses and your health care costs.

Indeed, supplemental insurance -- in addition to Medicare benefits -- is very important, says Gerry Smolka, a spokesman for AARP.

"When you go on Medicare, you get an option to buy a supplemental policy [called MediGap], despite any pre-existing conditions," she tells WebMD. "Some people wonder if you can buy the cheapest plan when you sign up, then upgrade later if your health gets worse. The first time you're offered it is your best shot. You may not be able to upgrade later."