Successful retirement planning will include careful consideration on your part, and the part of your financial advisor – after all, one of your main goals should be having adequate savings to cover your healthcare costs for the duration of your retirement.
Most people have a general understanding of the fact that they will need medical care throughout their retirement, but not many people understand the specifics beyond that. For example, the average person may be in retirement for 20, 25, or even 30-plus years. Having enough money to cover healthcare expenses, potentially for three decades is absolutely vital to a healthy retirement plan, and should be at the forefront of your financial advisor’s priorities.
Of course, healthcare costs have been steadily on the rise for the last several decades, and don’t show any sign of slowing down or at least leveling off. Rising healthcare costs are as inevitable as inflation, and many retired Americans will need to face this reality sooner or later. There are four main areas in which healthcare costs affect retirees. Let’s take a look at what they are.
Increased Life Expectancy
A person retiring in 1950 had a life expectancy close to 75 years. Today, the average retiree is expected to live approximately 10 years longer. What this means in terms of healthcare costs is that you can expect 120 more monthly premium payments than your grandparents or great-grandparents needed to plan for.
Medical advancements have made it possible for people to live longer than ever. Thanks to early screening for conditions such as heart disease and diabetes, fewer retirees are facing these chronic, long-term health complications. Of course, a longer life can be a bit of a double-edged sword. A person in their late 80s is, medically speaking, more vulnerable than a person in their late 70s. Therefore, retirees in their late 80s, or perhaps even early 90s can certainly expect to be hospitalized more frequently than their younger counterparts, and hospitalization requires money.
Retirement spending goes through three phases: early retirement will see a lot of spending on travel and entertainment, in middle retirement, the focus may shift more towards social activities closer to home, and increased medical spending, whereas in late retirement the bulk of your money can be expected to go towards medical expenses and/or long-term care facilities.
The Future of Social Security
As a working American, you have been contributing to Social Security for many years. Even if you have a spouse who did not work full-time, as long as they met the minimum threshold for Social Security contributions, they are also guaranteed to receive these benefits once they reach retirement age. Perhaps the most reassuring aspect of Social Security benefits is that you cannot outlive them, unlike retirement plans.
Of course, that is all assuming that Social Security remains sustainable. There have been rumblings for many decades about whether or not Social Security can remain solvent. There are many promising reports saying that the crisis facing Social Security can be easily addressed, but there are just as many other reports warning workers and retirees alike not to become too reliant on the system, just in case.
Fair or not, the reality is that as more and more baby boomers retire, they represent a huge population drawing on Social Security rather than contributing to it. This is creating an inverse situation that threatens to destabilize this important safety net for seniors. Speak to your financial advisor and find out what recommendations they have to make sure that you can remain financially independent throughout your retirement, even if the worst-case scenario were to occur with Social Security.
Medicare and Healthcare Expenses
According to a recent study, the average retired couple will need approximately $220,000 to cover healthcare costs up through their 85th year. This number takes into account projected Medicare premiums, out-of-pocket expenses such as deductibles and co-pays, prescription drugs, and medical equipment.
Of course, that number is just an average. Retired persons needing specialized in-home care, or assistance from a long-term care facility may be looking at significantly more money, while the Jack Lalannes among us will pay less than the average.
Medicare coverage, with its part A, part B, part C, and part D components can seem a bit nebulous and difficult to understand, especially if you are younger and planning for your retirement well in advance. However, it is part of your financial advisor’s job to understand what Medicare is, how it works, and what you personally can expect to pay throughout your retirement.
Technically, preventative care is a lifelong process. Every time you visit your doctor for bloodwork, a physical, or a routine checkup, you are working to sustain and prolong your health. Once you retire, preventative care visits will be covered by Medicare part B (unless you choose a Medicare part C plan, in which case they will be covered under that.) Either way, you can still expect to pay co-pays and/or deductibles for your routine preventative care doctor visits.
Preventative care changes as you get older. For example, you may have never received a pneumonia vaccine in your life, but once you reach retirement age, they are highly recommended. It is important that you understand the frequency of these new preventative care visits, and more to the point, their anticipated cost.
Retirement is absolutely your time to kick back and enjoy your hard-earned free time after many decades of hard work and dedication. There will be travel, and new experiences, and more time to focus on hobbies, friends, and family. But do not let these expenses be the sole focus of your retirement planning. Your financial advisor should have plans in place to make sure that your money continues to grow, even after you stop working.
Your health is of vital importance, and your healthcare costs must be accounted for in your retirement planning. For a more in-depth look of what successful retirement planning looks like, download the free white paper “Living in Retirement.” With the right strategies in place, you can enjoy your retirement in comfort and good health.