Don’t Forget About Healthcare Costs in Retirement

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What’s your biggest retirement fear?

If you’re like many people surveyed by Franklin Templeton recently, you might be worried about healthcare expenses. Paying for medical and pharmaceutical expenses was a top concern for those surveyed, followed by paying off debt and paying for assisted living.

It’s easy to fall into the trap of worrying without taking action, but there are steps you can take to plan ahead. Here’s what you need to know.

How much will I spend?

A recent study by the Employee Benefit Research Institute found that Medicare Beneficiaries could expect the following:

A 65-year old couple with median prescription drug costs who wants a 90% chance of having enough savings throughout retirement need $273,000.

A couple with prescription drug costs at the 90th percentile who want a 90% chance of covering their costs needs $368,000.

Both estimates are as of 2017.

What does that frightening number mean? It means that whether you’re already in retirement or approaching it, the issue of how to cover medical expenses should be top of mind.


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Budgeting for the unexpected

For many people, recurring expenses like premiums and doctor’s appointments might be relatively stable throughout retirement. It’s the new medication, nursing homes, health aides, and long-term care stays which can suddenly — and dramatically — change the cost profile.

Planning ahead is difficult, though, because these costs are highly variable from one individual to the next.

For example, an Employee Benefit Research Institute found that the difference between two people who:

  1. both die after age 95
  2. both have healthcare spending at the 95th percentile
  3. differ only in that one pays out-of-pocket nursing expenses and the other doesn’t

can amount to almost $100,000 in total healthcare spending between ages 70 and 95.

This is obviously a huge range of potential outcomes. How can you budget for the unexpected when the cost of the unexpected is so hard to define even by professional researchers?

First: Prioritize health

You can try to reduce the risk of needing the most expensive forms of care by taking charge of your health.

While there are no guarantees when it comes to our health, you can take steps to improve your chances of enjoying a hale and hearty retirement. One big one? A healthy lifestyle with regular exercise and a nourishing diet.

If avoiding the nursing home isn’t a suitable motivator, focus on the other benefits — for example, more energy for your grandkids or more ability to maintain an ambitious travel schedule.

Whatever your most motivating goal, find a reason to stay active and take care of your body.

Second: Make contingency plans

Consider building a budget around the assumption that you might need more help than you bargained for.

For example:

  • How would you cope – practically and financially – if you or your spouse suddenly experienced a serious illness or injury?
  • Based on your financial plan today, how much would you have in assets if the same thing happened in 20 years?

These aren’t pleasant subjects to ponder, but hypothetically putting yourself in the situation can help you take some small but necessary financial steps to help avoid catastrophe later on.

If you’re not sure how you’d cope with a major healthcare expense, you might consider talking with your advisor about:

  • Taking a few more years to save before you retire
  • Reassessing your lifestyle needs and preferences in retirement
  • Reviewing your investment strategy and asset base
  • Reconsidering your insurance coverage and policies

Whatever you do, remember that the biggest mistake you can make is to assume that you or your spouse won’t incur any significant healthcare costs in retirement.

While it’s certainly possible that you’ll both sail through retirement without a scratch and die peacefully at 100, the reality is that most retirees see the inside of a nursing home at least once in their lifetimes.

For people aged 57 to 61, over 55% can expect to stay in a nursing home for at least one night. But once there, the average stay is 272 nights – and the likelihood of a longer stay increases with age. This also doesn’t account for in-home care costs and other expenses, like out-of-pocket requirements for the treatment of chronic illness.

But with some concerted planning, you can help boost the medical odds in your favor and put yourself in a position to financially weather a healthcare storm. Tough as it is to plan for the unexpected, you owe it to yourself to try!

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Download our free guide to the ins and outs of Medicare today and learn about your options – and how to make smarter Medicare decisions.


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Let Us Help!

We can discuss this topic and more at a complimentary appointment. As a bay area retirement specialist we can give you a review and make suggestions based on your retirement objectives.

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The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by United Planners.

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Securities and advisory services offered through United Planners Financial Services, member FINRA, SIPC. Pasquale Vitucci, CA Insurance Lic. # 0758212, is an Endorsed Agent of Vitucci & Associates Insurance Services CA Insurance Lic. # 0I06319. Vitucci & Associates Insurance Services and United Planners are separate and unrelated companies.
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Further Reading

Franklin Templeton Survey

Healthcare expenses in retirement

Nursing home statistics