Find your high quality, low cost Medicare plan today!
See Plans Button

The Startling Truth about Healthcare Costs in Retirement and What You Can Do About It

Couple are Happy, Seeing they can afford the Healthcare Costs of their retirement savings

Have you started saving for retirement yet? If so, how much have you put away to date? Whatever it is, the likelihood is that you are short of the amount you need to enjoy your golden years in comfort. According to Time magazine, approximately one third of Americans have no retirement savings, while 56 percent have less than $10,000 saved. On the other side of the coin, nine percent of women and 16 percent of men have more than $300,000 saved.
However, it is important not to panic if you don’t have retirement savings. If you work for 10 years in “covered” employment or are married to someone that meets the criteria, you are entitled to Social Security benefits at retirement. The Congressional Budget Office says that the average person born in the 1970s, who earns in the bottom 20 percent, is entitled to Social Security benefits equal to 93 percent of their career-average earnings when adjusted for inflation.
However, is this enough of a safety blanket when it comes to healthcare costs as a senior? Probably not, as you will discover below.

How Much Will My Healthcare Cost in Retirement?

Obviously, everyone is different, but various financial services companies have attempted to provide estimates. For example, Fidelity suggested that a 65-year old couple could expect to spend $245,000 on average over the first 20 years of retirement. This figure does not include long-term care or nursing home expenses. If you think this is a large figure, new data suggests Fidelity is underestimating the real cost.
HealthView Services suggests the actual average cost for healthy 65-year-old couples is $288,000. When you include the added costs of extras not covered by Medicare, such as dental and vision services, the cost rises to $377,000. Since health care inflation could average over five percent for the next 20 years, younger couples face even higher costs. In reality, the numbers mentioned above are only starting points because they make a number of assumptions. For example, the financial services companies assume you and your partner are in good health, and they use an average life expectancy of 87 for men and 89 for women.

How Do I Prepare for These Healthcare Costs?

If you work in a job that offers health benefits, you probably haven’t considered the costs of your medical expenses in retirement. When you leave the workforce and settle into retirement, the way you pay for health care changes, so you need to stay on top of things before they become overwhelming.

Know What Is Covered

According to HealthView Services, Medicare covers marginally over half of your total health care expenses when you retire. As well as paying premiums for Medicare Parts B and D, you need to consider a litany of out-of-pocket expenses and co-payments. Medicare does not cover hearing, vision, and dental services, so you’ll need to purchase supplemental insurance to get the coverage you need.

Don’t Underestimate Basic Medicare Costs

Although working Americans will receive Social Security payments, the sum you receive is not enough to cover the cost of living. In fact, research suggests that health care costs in retirement alone use up to 93 percent of your Social Security payment. A Fidelity survey revealed that almost half of Americans believed healthcare costs as seniors would reach approximately $50,000 per person; around one-sixth of the actual amount.

Unfortunately, health care inflation is likely to rise well beyond the rate of Social Security Cost of Living Adjustments (COLAs). While health care inflation was below four percent in 2012, the United States Department of the Actuary believes it will average over six percent for the next decade. In contrast, COLAs have increased by an average of less than two percent since 2009.

As you’re probably aware, your health care costs will increase as you get older. When you are 65, your annual costs will average $7,000. By the time you reach 85, the average annual cost more than doubles to $14,530.

Factor in Additional Costs

Even a rough guide will help your budget attempts immensely. It goes without saying that you should embark on a he

healthier lifestyle. This could mean extra expenses such as gym memberships, personal training sessions, and organic food purchases. These short-term costs may yield significant benefits going forward and save you tens of thousands of dollars.

A Savings Guide

The best advice for all Americans is to start saving right now if you haven’t done so already. If you save just $2,400 a year for 25 years with an annual ROI of eight percent, your investment will grow to $175,000. If you save the same amount with the same ROI for an extra 10 years, your savings increase to $413,000; enough to keep you comfortable in retirement.

Investopedia offers a handy saving guide and outlines just how much it is possible to save without a great deal of effort. While we encourage you to read the full guide, here are the highlights:

  • In Your 20s: Focus on repaying student debt and contribute to any 401(k) or 403(b) plan your employer offers.
  • In Your 30s: You should have the equivalent of your annual salary saved by the time you reach the end of your 30s. In other words, if you earn $50,000 a year, you should have $50,000 saved.
  • In Your 40s: You should have triple your annual salary saved by this stage. For $50,000-a-year earners, this equates to $150,000.
  • In Your 50s: You should have saved quadruple your annual salary. This equals $200,000 for our hypothetical $50,000-a-year earner.
  • In Your 60s: You should have saved six times your annual salary. That equals $300,000 for our hypothetical individual earning $50,000 per annum.

Final Words

The savings guide should give you an idea of what you should save. Clearly, circumstances will dictate your ability to save for retirement, but don’t forget the costs associated with health care in retirement. Medicare only covers so much; the rest is up to you. Although it is never too late to start, it is much easier when you start young.

Pin It on Pinterest