Consider working longer. Many economists think most people should plan to work well past the current average retirement age, 63, in part to help finance health expenses. Working longer allows you to funnel extra cash into your nest egg, gives your investments more time to recover from recent market losses, and cuts the length of time your retirement stash needs to last. Workers age 50 and older can deposit up to $22,000 in a traditional tax-deferred 401(k) this year, up $1,500 from 2008. Social Security benefits also increase for each year you delay claiming benefits up until age 70. "People simply can't afford to cover their future health-care costs unless they have more assets, and people are responding to that by working longer," says Richard Johnson, an Urban Institute researcher. There is some evidence that continuing to work at a challenging--but not stressful--job or staying active and engaged by volunteering or taking up hobbies can help you stay healthy even longer. "Mental and physical exercise improve overall brain fitness," says Gene Cohen, director of the Center on Aging, Health, and Humanities at George Washington University. "Mastery and a sense of accomplishment can improve mental fitness by boosting the immune system."
Factor in long-term care. What's often the greatest retiree medical expense of all--long-term care—generally isn't covered by Medicare. Last year, a private nursing home room cost an average of $76,460 a year, or $209 per day, according to a Genworth Financial survey. Costs vary considerably by state, and range from an average of $125 a day in Louisiana to $515 in Alaska. More inexpensive options are available, but even they could torpedo most retirees' budgets. The average rate for a home-health aide is $19 an hour. That comes to $43,884 per year for 44 hours a week of care. A private one-bedroom unit in an assisted-living facility typically costs $36,090 annually. And the most frugal long-term care option, adult day care, still runs $15,236 per year, on average, for care five days a week, Genworth Financial found.
Consider long-term care insurance...carefully. Long-term-care insurance can help protect you from some of these catastrophic costs--at a hefty price. AARP estimates that a 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing-home and home care. And Fidelity Investments calculated that a couple, both 65 in 2008, would need $85,000 just to insure against a lifetime of long-term-care expenses. Before you buy long-term care insurance, you should get answers to plenty of questions: how to cancel the policy; what happens if you stop paying the premiums; how many times you can renew; how long coverage lasts; what the maximum payout is (and whether it is indexed for inflation); and what needs to happen before you can begin claiming your benefits. "These policies are written stating very extensively what they will cover, and 20 years later when you start using long-term-care services, there may be some new modality of service that is not covered by your plan," cautions Johnson. You can check up on the financial health of insurers at A.M. Best, Moody's, or Standard & Poor's and with your state insurance department.
Go it alone. Retirees who find that they can't afford their medical needs sometimes choose to delay or go without necessary care. A Kaiser Family Foundation study found that some Medicare Part D enrollees who reached the "doughnut hole" gap in prescription drug coverage simply stopped taking their medication. For example, of those taking medications for specific conditions, 10 percent stopped taking oral anti-diabetic drugs, 18 percent gave up osteoporosis medications, and 20 percent discontinued the use of proton pump inhibitors to reduce gastric acid. But failing to treat a chronic condition will inevitably lead to higher health care costs in the future.