Can You Afford Health Care in Retirement?

As featured in Star Advertiser on July 10, 2018.

The average couple retiring at 65 years old can expect to pay $280,000 in health care expenses alone throughout their retirement, according to the latest analysis from Fidelity Investments.

That number represents a hefty chunk of most baby boomers’ retirement income. The Economic Policy Institute reports that families with a head of household between 56 and 61 have mean retirement savings of $163,000. Social security can help bridge the gap, but could still leave many seniors wondering how they’re going to foot such a large medical bill, not to mention enjoy their golden years.

When planning for health care costs in retirement, it helps to look at all income sources and expenses, including insurance premiums and long-term care. However, you may have to consider additional factors in your planning.

Expected income sources

Hopefully, you’ve been saving a portion of your income into a tax-advantaged retirement account for most of your career. Workers over 50 who haven’t saved enough — experts recommend six times your annual salary — can make catch-up contributions of an additional $6,000 annually for a 401(k) and $1,000 for a traditional or Roth IRA.

Social Security offers an average of $1,329 per month, though your benefits check may be larger or smaller depending on your full retirement age, the age you start claiming benefits, and your income history.

Expected health care costs

Seniors become eligible for Medicare at 65, but the average retirement age in 2017 was 62. This creates a retirement cost gap as early retirees pay pricy premiums for coverage to fill their needs until they become eligible for Medicare.

At 65, most retirees enroll in Medicare Parts A (hospital insurance), B (medical insurance) and D (prescription drug coverage). Most Americans do not have to pay a premium for Part A. However, Part B and Part D coverage both have premiums that vary depending on your income.

Medicare doesn’t cover all your health care expenses. In addition to premiums, seniors must pay many health costs out of pocket, such as dental services (unless you have a separate dental plan), eyeglasses, contact lenses, hearing aids and copays for doctor’s visits, tests and procedures.

The costs of care in retirement vary widely depending on age and general health. According to medicare.gov, the average Medicare beneficiary with a previous history of a heart attack paid more than $1,000 a month in out-of-pocket costs, while a person in good health paid $635 a month.

Seniors over 65 have a 70 percent chance of needing some type of long-term care service in their lives. Annual costs for long-term care range from $49,000 for a home health aide to nearly $100,000 for nursing home care. If you have a family history of chronic conditions or suffer from health problems, it may be wise to consider long-term care insurance.

Act now to afford care later

Unfortunately, with increased medical costs, longer life expectancies and uncertainty over Medicare funding, that $280,000 price tag will likely continue to increase. Seniors should act now to ensure they have the means to pay for health care as they age.

• Maximize catch-up contributions to retirement accounts.
• Practice preventive care: quit smoking and drinking, get your flu shot, eat healthy and make other lifestyle changes to reduce your risk or manage chronic conditions.
• Review your life insurance policy. If the kids are grown and you’ve paid off the mortgage, downsize your policy for lower payments.
• Open a health savings account (HSA) if you have a qualifying high-deductible health insurance plan. HSA contributions are pre-tax or tax-deductible, grow tax-free and can be withdrawn tax-free for eligible expenses.

By planning and preparing for health care costs, you can put yourself in a better financial situation to afford the care you need for a healthy and enjoyable retirement.

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