Do I have enough cash to cover my own health care needs in retirement? Here’s the simple math to figure it out

Do I have enough cash to cover my own health care needs in retirement? Here’s the simple math to figure it out

According to the Fidelity Retiree Health Care Cost Estimate, young people should expect to spend $315,000 over a 20-year retirement on co-pays, deductibles, premiums, prescriptions and other health care costs.

This scary number becomes even scarier when compared to the average retirement savings they have set aside. Based on numbers from the Transamerica Center for Retirement Studies, the average 65-year-old has $202,000 tucked away, which equates to a $113,000 shortfall by age 80 — and many retirees will live much longer.

Among people who are 65 years old today, according to the Centers for Disease Control and Prevention, about 22% of men will live to age 90 and 9.5% will reach 100, while about 34% of women will live to be 90 and 14.9% will celebrate their 100th birthday.

Using the 4% rule for retirement withdrawals, boomers would need a nest egg of $393,750 to just cover their estimated annual health care costs of $15,700.

Add in inflation—which could raise the cost of today’s $100 medical bill to $164 in 20 years—and developers will want to think about how they can save more to handle not only health care costs but all other retirement expenses.

Dont miss

  • If you owe $25,000+ in student loans, there are ways to pay them off faster

  • Too many Americans are still missing out on the cheapest auto insurance

  • Forbes: With two-thirds of Americans admitting to draining their savings to keep up with inflation, retirees have a secret key to bolstering their budgets in tough times.

Focus on annual cost

Instead of looking at the big scary number, think about your annual costs for health insurance, prescriptions, and other expenses that come up regularly.

For example, the standard 2022 premium for Medicare Part B — which covers physician services, hospital outpatient services, certain home health services and medical equipment — is $170.10, with an annual deductible of $233.

The Part A deductible for the first 60 days of inpatient care is $1,556. And there is no premium for Part D drug coverage until your income exceeds $91,000 ($182,000 for a couple), when the monthly payment is $12.40.

All told, that’s a total of less than $4,000 a year, which seems much more manageable.

Separate long-term and catastrophic care costs

As most people will find that their health care costs increase as they age, some may want to consider an annuity to cover important expenses later in retirement, including annuities with long-term care benefits.

Other options include a reverse mortgage on your home or a life insurance policy to pay off medical bills, cover the care of a surviving spouse, or as an asset to borrow.

Disability or long-term care insurance is expensive, but it can be a better option than paying more than $100,000 a year for a care facility. According to the American Long-Term Care Insurance Association, in 2022 a 55-year-old couple would pay $5,025 a year for $165,000 in immediate benefits and $400,500 at age 85, with benefits increasing 3% annually.

Consider a Health Savings Account (HSA)

HSAs offer tax-deductible contributions and withdrawals for eligible health care expenses are tax-free.

If you work and your employer offers an eligible high-deductible health plan, you can save $3,650 for an individual or $7,300 for a family, plus another $1,000 per person if you’re over 50.

To qualify, your plan must require a minimum deductible of $1,400 for an individual ($2,800 for a family) and a maximum out-of-pocket amount of $7,050 for singles ($2,800 for families).

If you have income, you can also continue to contribute to a traditional IRA or Roth IRA.

Stay healthy and busy

Attention to exercise, diet, and getting regular checkups for preventive care can keep typical age-related health problems manageable, rather than allowing them to become expensive full-blown health crises later.

Working more is also a great strategy for reducing health care costs. Staying on the job means you keep your employer’s health benefits, which allows your retirement savings to continue to grow instead of paying medical premiums.

One approach is to offer to transition from full-time to part-time work with your employer for the first few years of your retirement. Plus, working longer means you can delay claiming Social Security, which can increase your monthly benefit amount for when you claim your benefits later.

What to read next

This article provides information only and should not be construed as advice. Provided without warranty of any kind.

Leave a Reply

Your email address will not be published. Required fields are marked *