The looming pension crisis is not the only liability facing U.S. corporations and their retirees. Another big storm is brewing over retiree health care. The companies in the S&P 500 are short more than $320 billion needed to pay health-care benefits promised to current and future retirees. (1)

In response to the challenge of paying retiree health benefits, many companies are dumping retiree health insurance entirely. In 2005, only 33 percent of firms with 200 or more employees offered health insurance to retirees, compared with 66 percent in 1988. (2)

Paying for health care is the top financial concern for people over age 50. (3) Considering that American life expectancies are increasing, health care could become one of your biggest expenses in retirement.

Too Important to Risk

Having adequate health insurance not only helps protect your physical health, it could help protect your financial health, too. For example, a 65-year-old couple who live to age 80 can expect to pay up to $216,000 in health-care-related expenses. If they live to age 90, the estimate increases to $444,000. If they both see age 100, they could spend as much as $778,000 on health care. (4)

Imagine trying to cover these amounts out of pocket. In the best-case scenario, unexpected medical expenses might consume money you had set aside for travel or a new car. But if you or your spouse suffered a catastrophic medical event, you could be forced to dip into resources that you were using to generate retirement income. Even worse, you could be forced to sell major assets or go into debt to help pay the bills. Although no insurance policy will cover 100 percent of your medical costs, the proper coverage could help offset a significant percentage.

With pensions on their way out and retiree health insurance close behind, it's a good time to review your financial situation. Having adequate health insurance is a risk-management strategy that few people can afford to live without.

1) BusinessWeek, July 31, 2006
2) Employer Health Benefits 2005 Annual Survey, The Kaiser Family Foundation and Health Research and Education Trust
3) The Gallup Organization, 2006
4) Financial Advisor, April 2006

Prescription for Healthy Finances