Consider Health Care Costs in Retirement

Health Care is the 2nd Largest Expense in Retirement

According to a report from Fidelity Investments, a 65-year-old couple retiring in 2012 will likely spend at least $240,000 in health-care costs during retirement. In addition, the report indicates that the cost of health care is projected to grow 6.4% annually through 2019.

What Expenses are Considered in the Report?

Health care expenses include Medicare cost-sharing provisions, out-of-pocket for Medicare, part B&D premiums, and out-of-pocket prescription drug expenses. See more detail from Fidelity Investments" Presentation on Medicare and health care costs.

What else? Long-Term Care Costs.

Long term-care generally is needed when an individual is chronically ill due to the inability to fully execute activities of daily living or is suffering from cognitive impairment. An individual would have to spend at least three days and three nights in a hospital, before Medicare will cover a portion of the cost of care in a skilled nursing facility for up to 100 days. Medicare will NOT pay for custodial care (most of nursing home care is custodial care). No matter what, after 100 days, Medicare stops paying.

What to do?

1. Get your Budget Straight: If you anticipate lower living expenses in retirement, you may be underestimating your expenses. This is why when we do retirement projections for our clients, we project a higher level of expenses for health care and use a higher rate of inflation. The point is to be realistic about your expectations when it comes to your retirement budget.
2. Wait to retire if possible: waiting until you turn 65 and become Medicare-eligible is a good strategy. A couple might pay as much as $30,000 a year for bare-bones health insurance before they are eligible for Medicare.
3. Shop around: Make sure the Medicare supplemental plan you choose covers all your medications and don’t assume your former employer’s plan is most-cost-effective. It is generally recommended to shop for your Medicare plan annually because the costs change every year.
4. Plan for long-term care: Whether you like the idea of getting long-term care insurance or not, it is important to understand the cost of care and discuss options with your advisors.

With increasing longevity and high costs for care, planning for health care expenses in retirement is more important than ever!