Financial Planning and Healthcare Costs in Retirement

Anne Hussman |

How Much Have You Thought About Healthcare Costs in Retirement?

When planning for retirement, it’s important to consider a wide variety of factors. One of the most important is health and its associated costs. Thinking about your future health and the rising cost of healthcare can help you better plan for retirement in terms of both your finances and overall wellbeing.Healthcare costs typically rise faster than the rate of inflation. The average inflation rate from 2010 to 2017 was less than 2%, while the average spending on prescriptions, doctors, and hospitals grew between 4% and 5%.1

You could need more than $500,000 just to cover healthcare costs in retirement. In 2017, America’s Health Rankings projected that a 45‐year‐old couple retiring in 20 years could need about $600,000 to cover their  healthcare costs, excluding the cost of long‐term care. The same report projected that about 70% of those age 65 and older will need some form of long‐term care services. And according to the Department of Health and Human Services, the average cost of a one‐year stay in a nursing home (semiprivate room) was $82,000 in 2016.2

Medicare does NOT cover the costs of long‐term care, nor some other medical costs. Original Medicare Parts A and B help cover inpatient hospital care, physicians’ visits, preventive care, certain laboratory and rehabilitative services such as physical therapy, skilled nursing care and home health care that are not long term. Medicare Part D helps cover the cost of prescriptions (within certain guidelines and limits). Medicare does not cover several other costs, including long‐term care, dental care, eye exams related to eye glasses, and hearing aids. Seniors may need to purchase additional insurance to cover these and other services not covered by Medicare.3

If you’re concerned about healthcare costs in retirement, you can just delay your retirement in order to maintain your employer‐sponsored health benefits. This maybe true, maybe false. Many people believe they will work well into their traditional retirement years, both to accumulate as large a nest egg as possible and to take advantage of employer‐sponsored health benefits (if offered beyond age 65). While this is an admirable goal, you may not be able to control when you actually retire. In a 2018 retirement survey, nearly 70% of workers said they planned to work beyond age 65; 31% said they would retire at age 70 or older. But the reality is that nearly 70% of current retirees retired before age 65. Many of those individuals retired earlier than planned due to a health problem, downsizing, or other unforeseen hardship.4

The bottom line is that while it’s hard, if not impossible, to predict your future health needs and healthcare costs, it’s important to work these considerations into your overall retirement planning strategies. Take steps now to keep yourself healthy — eat right, exercise, get enough sleep, and manage stress. And be sure to account for healthcare expenses in your savings and investment strategies.

1 Consumer Price Index, Bureau of Labor Statistics, 2018, and Peterson‐Kaiser Health System Tracker, 2018, 2 Preparing for Health Care Costs in Retirement, America’s Health Rankings, 2017, and LongTermCare.gov, 2018, 3 Medicare.gov, 4 2018 Retirement Confidence Survey, Employee Benefit Research Institute


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