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Factoring Healthcare Costs into Retirement Planning

Most people imagine spending their hard-earned retirement dollars on vacations or gifts for their family. When planning for retirement, they don’t consider the less glamorous but potentially devastating healthcare costs that can quickly eat into their savings.

Thanks to medical advances, you have a longer life expectancy, but it is your job to plan for the accompanying healthcare expenses. Most of us won’t have to pay for Medicare Part A, which covers hospital insurance. However, the Medicare Part B physicians coverage will cost around $100 per month, plus another $30 for Medicare Part D (prescription coverage). Then there are also deductibles and copays to think about, which can add up to $162 plus 20% of Part B expenses.

The cost of healthcare is rising, so you need to consider your healthcare in retirement. Trying to save money by seeking cheaper medical services isn’t feasible; however, you can better prepare yourself for these eventualities. Be sure to include projected healthcare costs in your retirement plan, advises Jim Adkins, president and CEO of Strategic Financial Associates.

Imagine your health future

This can be done by taking a look at your current health and imagining what it might look like in the future. Also remember that Medicare doesn’t cover everything (such as dental, vision, chiropractic care or long-term care), but there are Medigap plans available to cover some of these expenses.

In addition to Medigap, dental and vision insurance, consider purchasing a long-term care policy. Such a policy will protect your dollars so you can live out your retirement dreams instead of worrying about the costs of healthcare in retirement. It is estimated that nearly 70% of people will eventually require some form of long-term care, and this can carry a total cost of more than $300,000. There are many affordable solutions, some of which even include staying in your own home, but be sure to take a look at this early so you have more options.

According to the insurance industry, approximately 50% of all people 65 and older will spend some time in a nursing home during their lifetime — at an average annual cost of $74,000 per person. Fifty percent. Financial Advisor Joseph Carpenito encourages you to preserve your assets, add options for quality care, and preserve your independence and financial freedom.

Factor in inflation

Traditional retirement plans may simply project out a single amount as your cost of living, which is basically how much money per year an individual or couple may need to maintain a determined standard of living. The issue with using a single amount is that it doesn’t allow you to adjust for inflation of medical expenses.

The historical Consumer Price Index (CPI), which is the measure of the average change over time for the cost of a “basket” of consumer goods, is typically between 3% and 4% depending on the time period examined. However, recent surveys indicate that medical expenses are increasing at a faster rate, 4% to 8%. Research also has suggested that medical expenses often decline right after retirement, compared to pre-retirement expenses, and then increase significantly toward the end of life.

A retirement plan needs to be able to adjust not only for various rates of inflation but for fluctuations in the expected costs of medical expenses throughout the retiree’s life, says Jeff Jones of Longview Financial Advisors. Breaking out the cost of future medical expenses is critical to the life of a retirement plan.

When planning retirement healthcare costs, please take all this information into consideration.

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  • About Tina OReilly:

    Tina is a freelancer, who loves writing and says there's nothing better than flip flops and the ocean. She resides in RI with her husband, four children and three crazy dogs.


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