For many American seniors, the golden years of retirement might need a little more gold stashed away than initially planned. Particularly when considering post-retirement healthcare expenses, the financial burden could stress the nest egg significantly. A recent study has shown that after leaving the workforce, most couples might require savings upward of $400,000 to comfortably cover their medical bills alone. Alarmingly, this is beyond what most retirees have saved for their total post-retirement expenses, indicating a considerable healthcare cost crisis in the offing.
Understanding Medical Expenses
Healthcare costs involve a broad spectrum of expenses–from regular check-ups, preventive screenings, and routine doctor visits to more concerning costs such as treatments for chronic illnesses, surgeries, prescription medications, and long-term care. These don’t account for out-of-pocket costs—procedures or medication not covered by insurance, or the premium you pay to continue your insurance coverage— which can add up to a significant amount. This is particularly vital for retirees, as health issues and related expenses are more likely to increase with age.
Financial experts universally agree on the importance of taking into consideration healthcare costs while planning for retirement. Still, a significant number of retirees are unprepared for the real expenses associated with these costs. While it’s universally recognised that medical expenses will generate a significant portion of a retiree’s budget, the magnitude of these expenses is often underestimated.
The Unanticipated Financial Burden
A number of studies predict that a 65-year-old couple in good health can expect to spend upwards of around $400,000 out of pocket on healthcare during their retirement years. This heavy toll does not include the costs of nursing home or long-term care and is significantly above the average total savings of most retirees.
In a country where median savings for retirement stand at around $120,000 for households near retirement age, the expected outlay for healthcare alone is worrying. Consequently, many retirees are left with either using their retirement savings, like pensions or 401k, or selling assets like houses and other property, to cover the exorbitant medical costs.
Prepare Today for a Healthier Tomorrow
To circumvent such a crisis, it becomes crucially important to start considering health expenses as you create your retirement plan. This is where financial planning and retirement savings become critical. A rule of thumb would be to set aside a significant portion of your savings for healthcare costs, keeping in mind that these expenses usually tend to go up with age.
Inclusive of the current inflation and considering an average life expectancy of 85, financial experts opine that each retiree should aim for health-care savings amounting to roughly $190,000 for women and $170,000 for men, considering the longer average lifespan for women.
Long-Term Care and Its Consideration
Furthermore, the necessity of long-term care, often not included in most health insurance plans, should also be anticipated while concocting retirement plans. Meta-analyses have shown that almost 70% of seniors will need some sort of long-term care during their lifetime, with an average duration of three years.
With the costs for a private room in a nursing home hovering around $105,000 per year, and the hourly rate for home health assistance reaching around $24, these considerations substantially raise the projection of healthcare costs in retirement.
If you think that Medicare will take care of these expenses, unfortunately, you would be mistaken. Medicare falls short on long-term care coverage, generally covering skilled nursing care, but often not the custodial care (which involves assisting living activities), that so many seniors end up needing.
Insurance as a Safety Net
With healthcare expenses increasingly becoming a significant portion of retiree’s budget, obtaining a comprehensive health insurance plan becomes crucial. However, it’s pivotal to understand what different health insurances cover and what falls out of their purview so you can plan better.
For instance, traditional Medicare typically covers a significant portion of in-hospital and doctor’s services, some prescription medicines, and usually rehab following certain medical events. Supplemental or Medigap policies can be purchased separately to cover most out-of-pocket costs.
However, Medicare parts A, B and D come with their own premiums, which in 2020 stood at $144.60/month for part B, and can vary for Part D depending on the plan, with an additional cost for the Medigap policy. This adds a further dimension to retirement healthcare cost planning.
Final Thoughts
Retirement signifies the culmination of your professional journey and should ideally be a time of relaxation and peace. However, unforeseen medical expenses can create significant financial strain and necessitate substantial savings beyond what you might currently anticipate.
Acknowledging the magnitude of healthcare costs in retirement and incorporating them into financial planning can help ensure a stress-free and fulfilling retired life. Consulting with a financial planner can provide tailored advice according to your unique circumstances and help create a prudent plan to navigate through the retirement years comfortably.
Remember, a well-planned today is a secure tomorrow. So don’t let the cost of medical expenses catch you by surprise. Because when it comes to retirement, it always pays to be prepared!
