Health Care – Your Biggest Risk in Retirement?

August 25th, 2020 by Jim Allen

Health Care Sticker Shock
For many people, health care will be the largest expense they have during retirement. In fact, according to Fidelity Benefits Consulting, a 65-year old couple retiring this year will need an average of $295,000 to cover basic medical expenses in retirement (excluding the cost of long-term care). While that number may create “sticker shock” and may even seem a little unrealistic, there are a number of factors that add up to create such a big expense during retirement. Most Americans are eligible for Medicare starting at age 65 and think that their health care costs will go down during retirement. The unfortunate reality is that Medicare has several premiums and deductibles and doesn’t cover all the common health care services many retirees will need.
For instance:
• There are premiums, co-pays and deductibles for Medicare Parts B and D
• Dental care, hearing aids, podiatry and vision care are common items that are not covered under Medicare
• You can purchase supplemental or “Medigap” plans from private insurers to help with these non-covered expenses, deductibles and co-pays, but supplemental plans also have premiums with an average monthly premium of around $183 per person.
• Based on the Fidelity Benefits Consulting study, a retiring 65-year old couple will need an average of $680 per month to cover medical costs throughout a 30-year retirement.

Finally, with the COVID pandemic and related economic downturn, many people close to retirement, but not old enough for Medicare, have struggled with finding and paying for healthcare coverage.

Catastrophic Costs of Long-Term Care
These numbers, as daunting as they are do not include the potentially catastrophic costs associated with long-term or nursing home care. According to this same Fidelity study, a 65-year old couple would need an additional $130,000 to insure against long-term care expenses.
Because health care costs are such a large expense during retirement, and these costs are growing faster than the overall inflation rate, people nearing retirement are worried about the impact this will have on their retirement income plan.
• In a Nationwide / Harris poll, more than half of the people surveyed say they are terrified of what health care costs may do to their retirement plans.
• Another thing to be concerned about is that many of those projected costs come later in life when your assets may be depleting.

Plan for Health Care Costs
Since this is such an important issue, incorporating health care costs into the retirement income plan is critical. There are ways to minimize the risks of health care including:
• Pre-funding costs
• Using health savings accounts where available
• Making good lifestyle choices and transferring risk using insurance
Incorporating a future health care cost “assessment” into the retirement income plan is a critical component, and we recommend talking to us about how to create an “umbrella” under the storm clouds of retiree health care costs.

Addressing health care is an integral part of our comprehensive “MoneyLife” planning process. As such, we are offering a timely virtual seminar on the topic on September 23rd & 24th. Please contact our office to sign up.