Health Care Costs – The Storm Cloud Hanging Over Your RetirementSubmitted by Orange CA Financial Advisor | Sterling Wealth Partners on September 1st, 2016
Part 1 – Understanding your health care costs in retirement
This is the first of a three-part series on planning for health care costs in retirement.
For many people, health care will be the largest expense they have during retirement. In fact, according to Fidelity Benefits Consulting, a 65-year old couple retiring this year will need an average of $260,000 (in today’s dollars) to cover basic medical expenses in retirement (excluding the cost of long term care). While that number may create “stickershock” and may even seem a little unrealistic, there are a number of factors that add up to create such a big expense during retirement. Most Americans are eligible for Medicare starting at age 65 and think that their health care costs will go down during retirement. The unfortunate reality is that Medicare has several premiums and deductibles and also doesn’t cover common health care services many retirees will need.
For instance, there are premiums, co-pays and deductibles for Medicare Parts B and D and dental care, hearing aids, podiatry and vision care are common items that are not covered under Medicare. You can purchase supplemental or “Medigap” plans from private insurers to help with these non-covered expenses, deductibles and co-pays, but supplemental plans also have premiums with an average monthly premium of around $183 per person. Based on the Fidelity Benefits Consulting study, a retiring 65-year old couple will need an average of $680 per month to cover medical costs throughout a 30 year retirement.
These numbers, as daunting as they are do not include the potentially catastrophic costs associated with long term or nursing home care. According to this same Fidelity study, a 65-year old couple would need an additional $130,000 to insure against long term care expenses. Part two of this series will cover long term care planning.
Because health care costs are such a large expense during retirement, and these costs are growing faster than the overall inflation rate, people nearing retirement are worried about the impact this will have on their retirement income plan. In fact, in a Nationwide / Harris poll, more than half of the people surveyed say they are terrified of what health care costs may do to their retirement plans.
Since this is such an important issue during retirement, incorporating health care costs into the retirement income plan is critical. There are a number of ways to minimize the risks of health care including pre-funding costs, using health care savings accounts where available, making good lifestyle choices and transferring risk using insurance. Incorporating a future health care cost “assessment” into the retirement income plan is a critical component and we recommend talking to us about how to create an “umbrella” under the storm clouds of retiree health care costs.
 Fidelity Retiree Health Care Cost Estimate 2016
 Filling gaps in Medicare - www.medicareinteractive.org
 Fidelity’s 2016 Retiree Health Care Cost Estimate
 Survey conducted by Harris Poll for The Nationwide Retirement Institute October 2015