Everyone knows the importance of saving for retirement, especially millennials who may or may not have access to social security benefits when they reach 65. By starting to save for retirement in one’s younger years, one can ensure that there is enough money to survive and thrive after one’s working years are through; in fact, saving for retirement can be an exciting prospect, as a lack of responsibilities allows retirees to finally start checking off bucket-list items, like traveling the world.
Conversely, almost no one understands the importance of saving for end-of-life. Health care is costly throughout one’s life, but in advanced age, the body requires dramatically more medical intervention. In the United States, Medicare annually pays out about $50 billion for patients to survive just their final two months, and that statistic ignores the out-of-pocket payments made by many patients and patients’ families. Though death is something we all must face eventually, few people are prepared for the expenses that their death causes for others.
The Typical Costs
Most people start to notice an increase in their yearly health care spending sometime after they turn 65. According to research on Medicare beneficiaries, spending increases steadily between 65 and about 96, at which point spending drops off rather dramatically. However, it is the last year of elderly life that is unequivocally the most expensive.
Roughly 98 percent of all Medicare expenditures come from patients enduring their last year of life. Not only do end-of-life patients incur nearly $25,000 in out-of-pocket health care costs (while Medicare covers almost $40,000-worth), but these patients’ survivors usually also spend more than $5,000. These costs come from a variety of places; for example, a single night in a hospital’s intensive care unit (ICU) costs $10,000. More than 33 percent of patients in their last three months of life spend time in the ICU, and about 20 percent will spend their last hours alive there.
Perhaps the worst news of all is that many health care institutions take advantage of end-of-life patients, requesting tests and treatments that do little or no good, in order to abuse the Medicare system.
Even after life ends, the expenses are far from over. The death business is veritably booming in the United States, with the average American funeral costing more than $7,000. Unfortunately, the actual laying to rest of the body — meaning the grave plot or cremation — isn’t usually the main money-taker in the after-death; instead, it is the accumulation of a number of minor (but typically necessary) elements for the ceremony, like embalming fees, shrouds, hearse rentals, and flowers. Funeral costs are becoming so high that some survivors are taking out loans and going into poverty in order to provide their deceased loved ones with a respectful farewell.
How to Prepare
It is wise to prepare financially for the exorbitant costs of end-of-life care well in advance. First and foremost, every American citizen should begin adulthood with an estate plan: Completing a will or trust will ensure that one’s belongings are appropriately allocated no matter when or how one passes away. Additionally, many estate plans include advanced directives and similar documents, which instruct loved ones and doctors regarding patients’ desired medical services and can cut back cost significantly by restricting unwanted care.
Many savvy savers have begun to start stashing money in retirement medical savings accounts (RMSAs). Like traditional retirement accounts, the savings stashed in RMSAs become accessible after a certain amount of time, and come with a number of attractive benefits. Money placed in RMSAs are entirely tax-free when used for particular medical expenses, and it is tax-deferred if account holders decide to claim it for different purposes at a later date. Families can transfer as much as $6,550 every year into RMSAs to prepare for excessive end-of-life expenses later.
Besides preparing for medical treatment and expenses, it is smart to begin planning for one’s after-death costs, as well. A well-organized estate plan usually includes a description of the type of ceremonies requested as well as a dedicated account to pay for the necessary services. During this process, one should consider investigating the costs of different after-death options. Typically, cremation is much less expensive than burial, but prices will vary depending on what one (and one’s family) wants. A handful of after-death service providers will even give discounts for those who plan and pre-pay for their celebrations ahead of time, which is an excellent way to save money for the inevitable.
While politicians on both sides of the aisle gripe about health care reform, regular citizens are taking smart steps toward more affordable ends of life. In just the past couple years, the number of institutions offering palliative and hospice care have increased by the thousands, and millions of American patients are choosing to spend their final months in these low-cost, high-dignity spaces instead of a hospital’s ICU. In fact, in 2013 alone, the number of Medicare beneficiaries who sought hospice care increased to more than 30 percent. These trends are incredibly encouraging, as they suggest that Americans are more interested in the financial survival of their loved ones than the extension of a poor quality life.