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How to be richer in retirement without saving more money

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(Bloomberg Business) — Would you rather lose 15 pounds or have your 401(k) balance rise 15 percent this year?

Most people chose the latter in a recent nationwide survey of 1,000 401(k) plan participants. What those people might not fully realize is the financial payoff from losing those 15 pounds and being healthier in retirement. 

About 35 percent of the 25-to-70-year-olds in the survey commissioned by Schwab Retirement Plan Services were unwilling to sacrifice their quality of life today—to cut down on dinners out or on vacations—to save more for retirement. But the bigger issue is that many people simply can’t afford to save more. What those people can do is lessen the future bite of health-care costs by focusing on their health now.

For a little inspiration on the fitness front, consider these price tags on our future health:

* $220,000: This was Fidelity’s estimate of what a 65-year-old couple retiring in 2014 would need, on average, to cover out-of- pocket medical costs over the course of their retirement. It assumed the couple did not have retiree health-care insurance through a former employer but had traditional Medicare insurance coverage. Fidelity’s estimate for 2015 costs is due out later this year. 

* $17,000: That’s the annual jump in cost for every year that the couple is in retirement before age 65. So over four years, the couple could incur an extra $68,000 in medical costs.

Committing to regular exercise might even help you earn more money. A 2011 study from Cleveland State University found that men who exercised three or more times a week had about a 6 percent earnings gain compared with men who didn’t. For women, the gap was about 10 percent. (Women also seem to pay a greater penalty for being overweight.) The reason for the gap isn’t really known, though exercising improves mood, which could improve productivity. Another way to prepare for medical costs is to get familiar with how health savings accounts work, if your company has a high-deductible health-care plan. This Mayo Clinic article lays out many of the pros and cons.

Among the pros: The account travels with you from job to job, and you have control over how the money’s spent. (Granted, shopping around for medical care isn’t something most of us really long to do.) The cons include, well, needing to shop around to get the most out of your HSA money, plus the fact that an unplanned illness could wreck your health-care spending budget. 

Individuals can contribute up to $3,350 a year in an HSA this year, and it’s $6,650 for a family. Employers may seed it with some money. The reason financial planners get all goo-goo eyed about these accounts is that they are ”triple tax-free.”

You put pretax money in them, it grows tax-deferred, and you aren’t taxed on the money you use for medical reasons. That’s in contrast to a “use it or lose it” flexible spending account. After age 65, you can pull money out and use it for non medical reasons, and you’ll pay regular income tax on it.

Here are more details on what that $220,000 covers, according to Fidelity: ”The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Medicare.

The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services, and long-term care.” Fidelity notes that “the extra costs include health insurance premiums for the period prior to Medicare eligibility and estimated out-of-pocket costs.”

Almost 60 percent of employees reported an employer contribution of $1,000 or more in 2013, according to an Employee Benefit Research Institute report. In 2014, that fell to 51 percent.


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