Money Matters

Medical Costs and Retirement: The Facts

“Growing old ain’t for sissies.”  – Bette Davis

Ms. Davis was right. Between the stiffness, sore joints and pains that come with growing older, aging can get pretty rough. The golden years should be a relaxing time to enjoy life and play with the grandkids.  Unfortunately, because of health-care costs and poor planning, too many senior citizens have to make a choice between medication and eating.

Even with health insurance, the costs associated with elderly health-care can put a pinch in almost any pocket.  How big of a pinch?  Let’s check out the bottom line first.

$220,000.00. That’s what a study by Fidelity Benefits Consulting says a 65-year old couple, retiring in 2015, needs to have in retirement savings to cover medical expenses throughout retirement.  Put away significantly less than that, and a couple may find themselves with a major problem to overcome.

In discussing the study, Julia Vangorodska, an estate planning attorney from New York, says, “Rising medical expenses are forcing people to make some educated decisions about the services they utilize until retirement age.”

Afer increasing steadily each year for the past decade, health care cost estimates declined slightly in 2010 and 2011. In 2011, the estimate was lowered by $20,000 because of a one-off bookkeeping adjustment that resulted in lower out-of-pocket expenses for most seniors. Then, in 2013, the estimate dropped again because of lower-than-expected spending on Medicare, increased savings on prescription drugs and an increasingly sophisticated medical consumer.

When to Retire to Save Money

A person’s overall health will help drive health-care costs in retirement, but an equally important factor is the age at a person retires.

FBC’s study pointed out that couples who start their retirement at 62 don’t enjoy the potential savings experienced by those who can delay retirement until 67.  Couples who retire at 62 can typically anticipate an extra, estimated, annual cost of $17,000 per year for a total of $271,000 during retirement. The additional costs include the health insurance premiums for the period before Medicare eligibility kicks in as well as estimated out-of-pocket expenses. At the same time, couples who wait to age 67 to retire would typically reduce their health care costs to $200,000.

4 Tips for Fewer Worries

1. Understand options. Inform yourself on the options that are available to help with health-care coverage.  Be sure to research:

What type of coverage is needed

Where coverage can be obtained

Cost of coverage

2. Include health care costs in retirement planning

When you have a decent idea of how much insurance coverage will be needed, start reviewing your current health care costs along with other essential retirement expenses. Online retirement planning tools, like Fidelity’s Retirement Income Planner, can help with estimated income planning.

3. Make use of all funding sources

Research may show that you have other financial sources to meet health care costs in retirement. A retirement account and personal savings might also be redirected in whole or in part. An employer-provided Health Savings Account may be transferable into your retirement as well. Qualified medical expenses are often tax-free and can free up more dollars for your health care.  An often overlooked source of funding is part time work. Many employers offer part-timers benefits that may include some health insurance.

4. Become a smarter consumer

Being proactive and informed is the best preparation for managing your care in retirement. Identify the best providers before care is needed and a significant amount of money — and time — can be saved later on.  In addition to finding a physician to care for you in retirement, try to identify three other sources of medical care, such as:

A specialist for any existing conditions

An urgent care provider

A full-service hospital

With a little planning, the edge of growing older can be eased and you can maybe enjoy those grandkids a little more.


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