56 KIPLINGER’S PERSONAL FINANCE^ 10/2019care Part B and Part D premiums.
Long-term care, which isn’t covered
by Medicare, is another uncertainty
that retirees need to address. You may
never need long-term care, but if you
do, the bill can be huge. A study by
the U.S. Department of Health and
Human Services estimated that nearly
half of people who are now 65—or
who reached that age in the past few
years—won’t have any long-term-care
costs. But one-fourth are expected
to face long-term-care bills of up to
$100,000, and 15% will rack up costs
of $250,000 or more.
If you have the assets, you could pay
the bills out of pocket. Long-term-care
insurance is also an option, although
it can be expensive, and you may haveVanguard’s Bruno. You get a triple tax-
free benefit: Contributions aren’t taxed,
they grow tax-deferred, and the money
can be used tax-free for eligible medi-
cal expenses. And recent changes in
HSA rules for those with chronic con-
ditions make these accounts even more
attractive (see “Ahead,” on page 11).
For 2019, you can contribute up to
$3,500 if you have single coverage and
as much as $7,000 for family coverage.
To make the most of the HSA, pay
current medical bills out of pocket
(if you can afford to), so the account
has more time to grow. You can’t con-
tribute to an HSA once you enroll in
Medicare, even if you’re still working,
but you can use the money at any time
to pay medical bills, including Medi-stocks, reduce that to 40% or 30%, he
says. When the market falls, you can
use that opportunity to buy stocks at
lower prices and boost your holdings
back to 50% of your portfolio, he says.
Another way to protect yourself
during a market downturn—and pre-
serve your peace of mind—is to use the
bucket system. You divide your money
into three buckets based on when you’ll
need it. Bucket One holds enough cash
for living expenses in the first one or
two years of retirement that won’t be
covered by a pension, an annuity or
Social Security. Bucket Two is made
up of money you won’t need for the
next 10 years and can be invested in,
say, short- and intermediate-term
bond funds. Bucket Three is the
money you won’t need until much
later, so it can be invested in stocks or
even alternative investments, such as
real estate or commodities. (Review
your cash bucket annually to see if it
needs to be replenished from one of
the other buckets.)
With the bucket system, even if the
stock market plummets, you have the
comfort of knowing that you have
enough money in the first two buckets
to cover your expenses for years with-
out selling your stocks for a loss (see
“Make Your Money Last,” Oct. 2018).PLAN FOR
HEALTH CARE
Vanguard’s research last year esti-
mated that the typical 65-year-old
woman pays $5,200 annually in health
costs, including Medicare premiums
and other out-of-pocket medical ex-
penses. The cost nearly doubles by age
85, to $10,100 annually. “Health care
is the biggest wild card,” says Elliot
Herman, a CFP in Quincy, Mass. The
only sure thing about it is that the cost
will rise over time.
To help with medical bills in re-
tirement, consider opening a health
savings account while you’re still
working, if you have a high-deductible
health insurance policy. “We sometimes
say an HSA is a Roth on steroids,” saysRETIREMENT