9 Tips To Protect Baby Boomer Retirement Savings

baby boomer retirement savings

9 Tips To Protect Baby Boomer Retirement Savings

[Editor’s Note: Here’s a guest post from Jason Reed at BestRxForSavings. Enjoy his information to help out boomer plus those approaching the boomer category.]

The baby boomer generation is the largest in U.S. history until millennials recently surpassed them in number. As medical technology advances, this large generation is living longer and longer. While this is great news as quantity and quality of life are increasing, it can be a serious strain on their retirement savings.

While boomers may be planning and executing strategies for financial freedom, one variable often overlooked is healthcare costs. Medication in particular is one way to wreak havoc on a budget. Planning and budgeting constitute the best ways for anyone to meet retirement savings goals.

Average Baby Boomer Retirement Savings

According to a survey by Money magazine, the average baby boomer has $152,000 saved for retirement. While that sounds like a lot of money, it’s not enough to provide the type of retirement most are hoping for.

Even if you take social security into account, what happens if someone is diagnosed with rheumatoid arthritis? Occasionally, doctors want to start that person on a drug that could cost $20,000 to $30,000 per year. The out of pocket maximum for insurance would probably be met each year with only this one medication. That could eat into the retirement nest egg very quickly.

What Percentage Of Baby Boomers Retires?

Numerous surveys have been done showing that boomer’s overall financial I.Q. is not very high. Does that mean that baby boomers will not be able to retire?

Not exactly.

While some will work longer than anticipated, many will be forced into retirement. Several unexpected events that could lead to early retirement are:

  • taking care of aging parents
  • layoffs
  • health issues

In a study by Voya, 65% of baby boomers plan to work beyond 65. However, 60% of those already retired stopped working before they planned. Thus, boomers shouldn’t assume that they’ll work as long as they think.

Most will plan on retirement income coming from investments and social security. However, most will occasionally overlook how healthcare spending could eat into these income streams.

You Need A Long Term Health Plan Strategy

As the length and quality of life increases, it becomes more important to plan for an extended period without working. Chronic conditions such as heart disease, diabetes and cancer will be managed over longer periods. However, the expenses will rise.

Healthcare Planning Tools

To get a sense of what health costs may look like in retirement the AARP Health Care Calculator is a good place to start. It takes into account several variables and allows you to run different scenarios.

Ultimately, it shows:

  • total health care costs
  • what Medicare pays for
  • potential out of pocket expenses

Important things to consider:

  • Healthcare inflation rates have been higher than normal inflation by 1-2%.
  • Consider evaluating your immediate family to give a good gauge of potential life expectancy.

Are Medications Helping Or Hurting You?

Drug companies spend millions of dollars on direct public advertising these days. The commercials paint a picture of magic pills that will cure whatever ails someone. While some new medications are great advancements forward in medicine, others are just high cost with little benefit.

Here’s a few suggestions to help…

9 Ways Boomers Can Keep  Medication Costs From Ruining Retirement

1) Simple lifestyle changes

Many changes will occur as baby boomers age. Metabolism slows and hearing and vision worsen just to name a few. However, boomers don’t have to take it lying down. Much can be done to preserve health for years into retirement.

For more information, here are 7 important lifestyle changes for baby boomers to decrease spending on medication in retirement. These proven methods will keep baby boomer retirement savings from being overwhelmed by medical costs.

2) Understand high deductible health plans

Baby boomers with chronic conditions need to plan years in advance for how best to pay for abnormal health conditions. Trends in recent years have been away from normal health plans that are also known as preferred provider organizations (PPOs) and shifted more toward high deductible health plans (HDHP). The retirement planning component comes into play with health savings accounts (HSAs) that are paired with HDHPs.

Because Medicare is not a HDHP, you’re not allowed to contribute to HSAs once you enroll in Medicare. However, if you have a HSA before you enter retirement, you can still use that money toward qualified medical expenses.

Should you use a HDHP before enrolling in Medicare?

Boomers should consider seeding advice from a financial planner before age 65 to see if a HSA is right for their situation. Younger boomers in their 50’s may have 10 or more years to accumulate savings in a HSA prior to enrolling in Medicare. However, there are penalties if you don’t enroll in Medicare when you’re eligible. Those penalties should be weighed versus the benefits of contributing to a HSA.

For more on HSA’s, check out 11 key differences between an HDHP vs. PPO.

Save your nest egg from medication costs

Pharmaceutical manufacturers offer copay coupon cards to help lower patient out of pocket costs to get you used to using their drugs.

Baby boomers should realize that: Copay coupon cards are not allowed for Medicare patients.

What else can you do to lower costs?

3) Know your formulary

A formulary is a list of drugs that are either covered or not covered by your health plan or insurance company. Consider using drugs that are “on formulary” with your health plan as often as possible.

Medicare requires plans to cover at least two drugs in a therapeutic category. That means two different drugs that works in a similar way and are used for the same disease, such as high blood pressure. Most non-Medicare plans will have two drugs per therapeutic category as well.

Excluded Drugs

Drugs that will be excluded from your formulary for purposes of Medicare would be used for: weight loss or cosmetic uses.

Special Rules

In certain cases, a drug may be on formulary or non formulary and have special coverage rules. These may require:

  • Your doctor obtain a prior authorization so the drug is covered
  • Limit the quantity of the drug that can be obtained
  • Require that you have tried another drug in the same class before you take the one prescribed
  • Require that you use a specific pharmacy to fill the medication

4) Request generic drugs

Generic drugs are copycat versions created to be the same as a brand name drugs. They work the same way and are FDA approved on the basis of:

  • Shown to be safe and effective
  • Have the same amount of active drug, in the same dosage form
  • Are bioequivalent, meaning they act the same when absorbed in the body

Recent efforts to lower the cost of medications by Congress has been to increase the number of generics the FDA approves each year. The more competition there is, the lower the generic cost will be.

5) Ask for therapeutic alternatives

If there’s not a generic option, then consider asking for alternatives. Almost all medications will have another medication in the same therapeutic class that acts in a similar way.

This is important to know especially if you’re stuck paying out of pocket for an expensive brand name drug. The good news is that it’s likely to have a therapeutic alternative that has been around longer and hopefully has a generic availability.

Inform your doctors that medication costs are a priority early on which should help out in the long run.

Your doctor should expect to see similar levels of effectiveness from the therapeutic alternative at a cheaper price.

6) Pay cash

Certain drugs as, discussed above, have generic manufacturers which drives the price down and occasionally it’s cheaper to pay cash rather than use insurance.

Over the counter

Another consideration for paying cash are drugs that are available over the counter. Many drugs are available in prescription strength and over the counter strength. You may find that the over the counter strength is a better deal even if you have to buy a higher quantity to get the same strength.

Make sure you check with your pharmacist to see if any of your medications are available over the counter and if the prices are better than their prescription counterpart.

7) Patient assistance programs

Patient assistance programs are also referred as pharmaceutical assistance programs or PAPs. These programs are run by non profit organizations and are occasionally setup by pharmaceutical manufacturers.

They help patients in financial need be able to obtain necessary medications or supplies at little to no cost. Most often they’re used by under-insured or uninsured patients.

Types of PAPs

  • Uninsured PAPs
  • Under-insured PAPs
  • For patients with government insurance such as Medicare or Medicaid

Why would pharmaceutical companies set up a non profit to give money away to patients for expensive drugs?

If patients can’t afford medication because of high out of pocket costs, then the manufacturer wouldn’t make money. However, if they give the patient assistance to pay for the copay or deductible, the drug manufacturer now receives payment from the insurer.

When you look at the cost of specialty drugs, you’ll see why they’d be motivated to pay the patient out of pocket costs.

8) Mail Order Pharmacy

Typically an insurer encourages the use of mail order pharmacies as it helps increase their profitability and typically saves you on copay costs.

Many times the copay for a 90 day supply at a mail order pharmacy will be the same or just a little more than a 30 day supply at retail. That’s a 33% savings and typically shipping’s free.

Some patients like talking face to face to pharmacists. If that sounds like you, consider getting the first prescription filled at a retail store. Then talk to the pharmacist about getting him to do a 90 day supply through the pharmacy benefit manager (PBM).

90 day retail

The 90 day retail program are new programs that many PBMs use that can end up giving  savings but still allows you to fill the medication the way you prefer.

9) Don’t worry, be happy

Most baby boomers who don’t have a plan can feel stressed out which can raise blood cortisol levels. Exposure to cortisol over long periods has many negative effects such as:

  • weight gain
  • high blood pressure
  • mood swings

Planning can lower stress so consider making it a priority as it’ll pay off in the long run.

If you’re a boomer and are interested in saving more on medication, here’s a step by step guide to help.

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