Healthcare costs in the United States are amongst the highest costs in the world. In 2021, U.S. healthcare spending reached $4.3 trillion, which averages to about $12,900 per person.1 You can expect healthcare to be a significant expense during retirement. If you’re planning for or near retirement, you may need to adjust your goals when saving for out-of-pocket medical expenses because your savings may need to fill in the gaps.
How much will you need?
To anticipate how much older adults, participating in the Medicare program, may need to save to have a realistic chance of meeting their healthcare spending needs in retirement, a simulation model was built that allowed for the uncertainty due to mortality and rates of return on assets in retirement.2
- At 65, men must have saved $166,000, and women $197,000, to have a 90 percent chance of meeting their healthcare spending needs in retirement;
- Couples enrolled in a Medigap plan with average premiums will need to have saved $212,000 to have a 50 percent chance of covering their medical expenditures in retirement and $318,000 to have a 90 percent chance; and
- Couples enrolled in a Medicare Advantage plan must save $123,000 to have a 50 percent chance and $184,000 to have a 90 percent chance of covering their healthcare expenditures in retirement.
With the possibility of healthcare costs consuming a significant part of your retirement savings, you will want to have a plan in place for when these expenses arise. Homeowners who are 62 years and older may consider a reverse mortgage loan. A Home Equity Conversion Mortgage (HECM)3 is insured by the Federal Housing Administration. HECM loan allows senior homeowners to access a portion of their home’s equity into funds that can be used to pay for everyday living expenses, and medical/prescription costs, cover large or unexpected expenses, or set aside proceeds for an emergency fund.
How Can a Reverse Mortgage Help?
- Eliminate Monthly Mortgage Payments4: Homeowners can increase their monthly cash flow by eliminating their current regular monthly mortgage payment, allowing them to focus on other financial obligations.
- Access to a Low-Cost Line of Credit5: With an adjustable-rate HECM, there is the ability to draw from a line of credit at any time (in any amount) until the line of credit is exhausted, or let it sit and grow over time, allowing access to additional cash if the home value increases.
- Receive Funds in a Lump Sum6: With a fixed-rate HECM, you have the option to receive a portion of your home’s equity in a lump sum, often to pay for medical expenses or to consolidate debt.
- The Ability to Age in Place7: A HECM allows you to age in the comfort of your homes while maintaining ownership and the title.
Interested in learning more about how a reverse mortgage can help with medical or healthcare expenses? Call (800) 976-6211 to speak with a licensed reverse mortgage advisor for a free, no-obligation loan assessment.
3 As required by the Federal Housing Administration (FHA), you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance.
4 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing. You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
5 The reverse mortgage loan balance grows at the same rate as the available line of credit. Line of credit growth occurs and is only a benefit when a portion of the line of credit is not used. The unused line of credit grows over time and more funds become available during the life of the loan.
6 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. This disbursement option is only available for a fixed rate loan.
7 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.
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