Did you know that health care costs are likely to be your greatest expense during retirement? This makes it especially important to include health care costs in the equation when you consider how much money you need to save for your retirement. Today’s retirees are living much longer in retirement than their parents did—our increased life expectancy is often achieved through medical care. Here are some strategies to help you prepare.

Did you know that health care costs are likely to be your greatest expense during retirement? This makes it especially important to include health care costs in the equation when you consider how much money you need to save for your retirement. Today’s retirees are living much longer in retirement than their parents did—our increased life expectancy is often achieved through medical care. Here are some strategies to help you prepare.

Consider how health care costs will increase over time.

Today’s retirees are expected to live 20–25 years during retirement (longer for women). This is a large span of years over which health care costs will be increasing. The average U.S. inflation rate has risen to 3% compared to the 2.2% average in 2016. A 65-year-old, Medicare eligible couple that retires today will likely incur more than $349,000 in health care costs during retirement ( EBRI.org 2017).

Don’t overestimate your retirement health care benefits.

First, very few employers offer any type of retiree health benefits these days. Of those who do offer a program, the plan is often limited to “access only.” In other words, because you retired from the firm, you are eligible to obtain coverage, but you must pay the full cost of your premiums. Programs vary. Take time to meet with your human resources representative and ask questions to help you understand your benefits.

Second, many workers think that Medicare will cover the majority of their health expenses when they retire. In reality, Medicare (as we know it today) covers only 62% of the cost of health care services for Medicare beneficiaries age 65 and older ( EBRI.org 2013). It does not cover long-term care costs. In today’s dollars, you could spend $6,965 per month for nursing home services ( www.longtermcare.gov). This cost increases if you require special additional care, and costs will increase over time due to inflation.

Consider the potential for changes to current retiree health benefits.

As we all know, legislators are continuously tweaking the health care system due to budget constraints. Medicare spending cuts are always being considered, which could result in reduced benefits and higher prescription drug coverage premiums as federal subsidies are reduced.

Unfortunately, we do not know what the future holds for government-sponsored health plans. We should consider that there are factors out of our control, which may impact our health costs in the future. Because we can’t predict such changes, it is important to set aside savings in the event that benefits are reduced or premiums increased in the future.

Develop a plan that specifically addresses your health care needs.

We can help you evaluate the impact of health care costs on your retirement plan. When you know more about all of your retirement expenses, you can compare them to your current level of retirement savings and anticipated retirement income. If there is a gap, your advisor can help you develop a financial plan to help you boost your saving and investing to reach your retirement goals.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

 

Related Articles

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: http://brokercheck.finra.org/