Staying healthy may cost you in retirement

BOSTON - Keeping healthy and fit when you retire should result in lower health-care costs, right? A new report says it's not so.

While it's true that the annual health-care costs of healthy retirees are lower than those in poor health - $6,500 versus $8,000 for those ages 65 to 69 - the healthy face higher lifetime health-care costs, according to a report last week from Boston College's Center of Retirement Research.

Over a lifetime, healthy retirees may pay as much as $105,000 more than those in poor health, according to the report, which was sponsored by Prudential Financial.

Why is that?

"First, those in good health can expect to live significantly longer," the report said. "At age 80, people in healthy households have a remaining life expectancy that is 29 percent longer than people in unhealthy households, and, therefore, are at risk of incurring health care costs over more years."

Second, the report said that many of those currently free of any chronic disease will succumb to one or more such diseases. In running a simulation, Boston College found that individuals who are free of any chronic diseases at age 80 can expect to spend one-third of their remaining life suffering from one or more such diseases.

Third, the report said people in healthy households face a higher lifetime risk of requiring nursing-home care than those who are unhealthy. That reflects their greater risk of surviving to advanced old age, when the need for such care is highest.

Also, those who are healthy now but delay buying Medigap or long-term-care insurance could face higher premiums later on, according to Malcom Cheung, a vice president in Prudential's long-term-care division.

So what are we supposed to do with this information?

"It sounds like we are all 'damned if we do, damned if we don't,'" said Chris Cooper, a certified financial planner and president of Chris Cooper & Company Inc. and ElderCare Advocates Inc.

"Sounds like what we all need to do is start smoking, eat hamburgers every day, and gain lots of weight," he said. "Then, we won't have as strained a Social Security system, or government or private pensions, and we'll leave bigger estates to our kids who won't live long enough to spend it all, either - as long as they take up smoking, eat hamburgers every day and gain lots of weight, too."

Seriously, the truth of the matter is that you need to consider buying a long-term-care insurance policy and Medigap insurance, and factoring such costs into your budget, Cheung said.

"Those currently in good health would be unwise to infer that they will continue to enjoy lower than average health-care costs," according the Boston College report. "The reality is that even the currently healthy can expect to eventually suffer from one or more chronic diseases, which often results in high out-of-pocket and long-term-care costs."

The expected present value of lifetime health-care costs for a couple turning 65 in 2009 in which one or both spouses suffer from a chronic disease is $220,000, including insurance premiums and the cost of nursing-home care. Plus, there's 5 percent chance they can expect to spend more than $465,000.

The comparable numbers for couples free of chronic disease, meanwhile, are substantially higher, at $260,000 and $570,000, respectively.

In addition, the Boston College report found that households that delay purchasing insurance until their health declines not only run the risk of higher premiums, but being denied coverage altogether.

The moral of the story? "If you're in good health, don't procrastinate," Cheung said.

Truth be told, you don't know whether you'll be in the 5th percentile and have very low health-care expenses in retirement or be in the 95th percentile and have off-the-charts expenses. That's why there's insurance, Cheung said-so you can take advantage of the pooling.

Now, we know what many say about long-term-care insurance: That's it's a waste of money, especially if you don't use it. But to Cheung and others, long-term-care insurance should be viewed more like auto or homeowner's insurance and less like life insurance.

Indeed, few consider auto or homeowner's insurance as a waste of money if they never have to use it. Instead, it's the price one pays to insure against the risk of fire or accidents. Same goes for long-term-care insurance; it's the price one pays to insure against the risk of needing long-term-care.

Another problem with health-care costs in retirement, besides not knowing whether you'll be in the 5th or 95th percentile, is that few have a handle on the costs associated with long-term-care. And with good reason. Those costs range widely, not just by type of long-term-care service - home-based care costs are much lower than facility-based costs - but also by region, according to Genworth's seventh annual survey of long-term-care costs.

In general, you'll pay $18 per hour for licensed homemaker services; $19 per hour for licensed home health aide services; $60 per hour for adult day health care; $3,185 per month for an assisted living facility (one bedroom/single occupancy); and $206 per day for a private room in a nursing home, according to Genworth. But those are just averages. You can examine the state-by-state costs for various long-term care services at this website http://multivu.prnewswire.com/mnr/genworthfinancial/43289.

And then there's the problem of trying to get a handle on long-term-care insurance costs and which policy is right for you. That's no easy task. Premiums for a long-term care insurance policy run the gamut, according Jesse Slome, executive director of the American Association for Long-Term Care Insurance.

For those ages 50 to 54, the average premium is $2,236 per year, but premiums range from a low of $694 to $9,650. For those, ages 55 to 59, the average premium is $2,372, but premiums range from a low of $794 to a high of $8,824.

For her part, Nancy Morith, an adjunct professor of insurance at The American College, recently told Retirement Weekly that the best place to start is with the largest firms with the best ratings. Also, she recommended buying a policy that offers inflation protection (3 percent or 5 percent) and a monthly instead of a daily benefit amount. Morith also recommended buying a policy that provides a maximum lifetime benefit if possible, but at least three to five years. And lastly, she recommended buying a policy that offers first-day home-care coverage.

According to Cheung, the most popular long-term-care insurance policy sold at Prudential has a 3 percent inflation rider, a 100-day elimination period, a daily benefit of $150, and maximum benefit of five years.

No matter the cost of health care in retirement, some experts simply don't mind paying for it.

"I don't care how much it costs," said Cooper. "I want a good quality of life, which comes with good health, both physically and mentally. If longevity is the price we pay for eating healthy, keeping our weight down, not smoking, then so be it. I'd rather not live uncomfortably with illnesses and bad knees, hips, backs, and the like just because it is cheaper."

(c) 2010, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.