Facts About Health Care Cost in Retirement And Medicare

This article was originally published here

According to Fidelity Investments’ 21st annual Retiree Healthcare Cost Estimate, a 65-year-old couple retiring this year may expect to spend an average of $315,000 on healthcare and medical expenses throughout retirement.

Healthcare must be factored into retirement planning for seven reasons:

1. Healthcare costs will be higher at the end of retirement than at the beginning due to healthcare inflation. 

The total lifetime healthcare costs for a healthy 65-year-old couple retiring this year are expected to reach $572,960. This includes Medicare Parts B and D payments, supplemental insurance and dental insurance, out-of-pocket costs for hospitalization, prescription drugs, doctor visits, tests, hearing aids, hearing services, vision, and dental.

2. Higher healthcare costs in retirement will result from people living longer and healthier lives. 

Like all elements of retirement planning, expected lifespan gives the best framework for predicting expenditures. Although annual spending for seniors in poor health would be higher, lifetime expenses will be higher for healthy retirees since they will live longer on average. A 55-year-old man with type 2 diabetes (expected to live to 80) will spend $3,470 more per year on medical costs than if he were healthy. However, his lifetime healthcare expenses will be far lower than his healthy counterpart due to a shorter predicted lifespan.

3. Health-related behavior changes can significantly impact longevity and healthcare expenses. 

According to RAND Corporation research, half of all individuals in the United States have chronic illnesses like high blood pressure, obesity, type 2 diabetes, or high cholesterol. Many people in this group do not follow their doctor’s treatment recommendations. In fact, up to half of the people do not take their drugs as directed.

Expected longevity and retirement healthcare costs are significantly related to health issues and how well they are handled.

4. Health-related investing options can help keep costs in check. 

Long-term financial stability requires careful product selection, portfolio mix, and decumulation procedures to guarantee enough money is available.

Choosing financial products that lower Medicare surcharges in retirement and utilizing tactics like health savings accounts (for those in high-deductible plans) will help you maximize your retirement income. Roth 401(k)s, Roth IRAs, some life insurance and annuity products, and health savings accounts are examples of these products (HSAs).

5. Making small deposits while you’re working can help you save money on healthcare costs later in life. 

Regular contributions to investment products, 401(k) plans, HSAs, like other components of retirement planning, add up. The longer an investor can reap the benefits of compounding profits, the better.

6. Achieving income replacement ratio (IRR) goals will pay some but not all future healthcare expenses.

 Those on course to achieve an IRR of 80% are already addressing a portion of future healthcare expenses. Current industry-standard IRRs presume that healthcare costs are the same during employment and retirement.

7. One-time investments can help with healthcare costs in retirement.

Making additional weekly or biweekly contributions may be the most effective way for some to handle future healthcare requirements. Others may want a one-time lump-sum investment to cover future needs and take advantage of compounding gains.

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M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].