Estimating how much you’ll need to budget for health care in retirement can be difficult. Since this is often the largest expense for retirees, it’s important to make sure you set aside enough funds. Luckily, new data from Fidelity Investments may be able to help. Each year, Fidelity estimates the price of health care for the average 65 year old through the rest of their life, assuming they retire now. Based on their analysis, a 65 year old should plan to spend an average of $130,000 on health care over the course of their retirement. This includes costs that aren’t typically covered by Medicare such as premiums, co-payments, hearing and vision exams and eyeglasses. If you break it down by gender, the average cost for a 65 year old man is a bit lower at $125,000. Whereas, for the average 65 year old woman, this will be slightly higher, costing closer to $135,000, due to the fact that women live longer.
“For a while, it looked as if health care costs were holding steady, but Fidelity this year says couples need to set aside a record $260,000 for Medicare premiums and all other out-of-pocket medical costs – up 6 percent from last year and 18 percent from 2014.” According to Fidelity, the rising price tag is primarily due to prescription drugs, especially high-priced specialty drugs.
Of course, these costs are only averages, and will vary depending on one’s health and where they live. It’s also important to be aware that the estimates don’t include other costs not covered by Medicare such as long term care, home health, or nursing homes, all of which can be quite expensive. While long-term care isn’t right for everyone, the article states that “Such insurance offers protection against expenses so huge that they can bankrupt even upper-middle-class retirees, forcing them to spend their assets and go on Medicaid…” Unfortunately, some find it difficult to afford the high premiums. While for more affluent Americans, it may make sense to simply set funds aside for long term care, should they need it.
The idea of setting aside $260,000 for health care needs may seem like a daunting task for many. Therefore, financial planners offer the following tips to help make saving a little easier:
- Do your research to ensure you get the right Medicare supplemental insurance
- Be more tax efficient by taking advantage of health savings plans
- Maximize retirement income through strategies such as delaying social security or considering a longevity annuity
Regardless of how retirees choose to fund their health care needs, it’s always best to consult with a trusted advisor. If you’re concerned about covering the cost of health care in your retirement years, a reverse mortgage loan may be able to help. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3 If you’d like to learn more about reverse mortgages or want to find out if you’re eligible, please use our Reverse Mortgage Calculator or call us at 800.218.1415.
1 Retirees Need $130,000 Just to Cover Health Care, Study Finds – bloomberg.com, by Ben Steverman, 8/16/16, http://www.bloomberg.com/news/articles/2016-08-16/retirees-need-130-000-just-to-cover-health-care-study-finds.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
Author: Meredith Manz