When planning for retirement, it is important to factor in the cost of health care. According to Fidelity Benefits Consulting, a 65-year-old couple retiring this year will need about $220,000 to afford health care costs throughout retirement.1
This amount only covers basic health care expenses for retirees with Medicare coverage and does not include any assisted living expenses. Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business acknowledges the growing concern, “Rising health care expenses are forcing people to make educated decisions now more than ever, ranging from the services they utilize to the age they choose to retire.”
As people age and reevaluate their retirement needs, including a realistic cost of future health care costs may greatly alter retirement savings plans.
There is some good news in the cost of health care. The Fidelity Benefits Consulting estimate has decreased gradually since 2010. In 2011, Medicare reduced the out of pocket costs for many prescriptions which lowered the overall estimated cost of health care. Then in 2013, the estimated cost decreased again due to lower than expected Medicare spending, the gradual closure of Medicare Part D’s “donut hole” and an increasingly selective consumer who tends to seek out the best deal.
Demographics have also played a role in decreasing the estimated retirement health costs. As Baby Boomers retire, they add a younger group of enrollees to the Medicare program. Generally, younger enrollees have fewer, less expensive health care costs.
It is also important to consider when to retire as the age at retirement can greatly influence future health care costs. According to Fidelity, couples who retire at age 62, rather than 65, can expect to pay an average of $17,000 more each year for an estimated total of $271,000.
This includes the extra costs of insurance premiums prior to Medicare eligibility and out of pocket expenses. However, couples who retire at age 67 could decrease their estimated health care costs to only $200,000 during retirement.
Another option to consider is opening a heath savings account to save on expected health care expenses. High Deductible Health Plans (HDHPs) are often less expensive for both consumers and employers than traditional health insurance plans.
When enrolled in an HDHP, users can create a health savings account which allow users to pay for some medical expenses on a federal tax-free basis and the savings can either be used to pay for current qualified medical expenses or saved to use for medical expenses during retirement.
Health care during retirement can be expensive, so it is very important to plan ahead. When considering retirement costs, such as housing costs, basic living expenses and long term care, remember to include health costs. Working with a financial adviser you trust can help set up a realistic financial goal to live a comfortable retirement.
If you or someone you know is struggling to afford retirement expenses, there may be another option. A reverse mortgage loan allows senior homeowners to tap into a portion of the equity in their homes and use the equity as a supplemental form of retirement income. Homeowners must be at least 62 years old and have sufficient equity in their homes as well as a few other basic requirements. If you are interested in learning more about a reverse mortgage loan, call 800.976.6211.