How to Meet Your Retirement Healthcare Expenses

health care cash


There are lots of unknowns that have to be accounted for when it comes to planning for retirement, but perhaps the biggest are your healthcare expenses. This is due to two unavoidable facts. First, you probably don’t know what your health condition is going to be like when you retire, and second, you don’t know how much healthcare is going to cost during your retirement years.

Confidence Isn’t High

A recent survey conducted by the Employee Benefit Research Institute (EBRI) found that more than half of current retirees are not confident they have saved enough money to cover their healthcare expenses during retirement. According to EBRI, the average 65-year-old couple will need at least $163,000 to cover healthcare expenses in retirement.

“Keep in mind these are out-of-pocket expenses beyond those covered by Medicare and Medicaid,” says Martin Walcoe  EVP at David Lerner Associates.  “Some near-retirees think all of their healthcare costs will be covered once they start receiving Medicare when they turn 65, but this usually isn’t the case.”

For example, there are monthly Medicare premiums, copays and coinsurance, and annual deductibles, as well as other Medicare out-of-pocket expenses that are harder to predict. Also, keep in mind that the EBRI figure excludes long-term care expenses, which can easily amount to double the normal healthcare expenses, if not more. As for healthcare inflation, this has recently been rising annually at a rate of between five and seven percent, but there’s no telling whether this rate will be higher or lower when you retire.

Planning for Retirement Healthcare Expenses

Despite all the unknowns, it’s still smart to try to plan for your retirement healthcare expenses as best you can. This starts by making a few estimates:

1. How soon do you plan to retire? This will affect how much extra money you can stash away for retirement healthcare expenses. While you may be saving money for retirement in an IRA or 401(k), it might also be a good idea to set aside some extra savings that are specifically earmarked for healthcare during retirement.

One way to do this is to open a Health Savings Account, or HSA. This is a tax-advantaged vehicle designed to help you save extra money for your healthcare expenses, whether those expenses are incurred this year, next year or 20 years from now. There is no “use it or lose it” provision with HSAs, so the balances can roll over every year. If you are relatively healthy, you could accumulate a sizeable extra nest egg in your HSA to help cover healthcare expenses during retirement.

2. What might your health condition be when you retire? While there’s no way to know this for sure, you can make an educated guess based on things like your current health and your family’s health history. If you have chronic health problems now, or if health problems run in your family, it might be wise to plan on needing more money than the average person to cover healthcare costs in retirement.

3. What kind of healthcare financial assistance (if any) can you expect to receive from your employer? If your employer offers retiree healthcare benefits, be sure to factor this into your planning. While this benefit is less common today than it used to be, there are still some companies that offer it. Talk to your HR department to find out if you will have access to any retiree healthcare benefits in the future.

Don’t let the unknowns that are inherent in retirement healthcare expenses keep you from planning for how to meet them. Estimate these three variables as accurately as you can, and then create a plan based on your estimates that will help provide the income needed to cover these expenses when the time comes.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC


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