Steve Coker, CFP
Medical Expenses in Retirement - What You Can Expect
For many Americans finally retiring from their job means more than just walking away from a paycheck; it also means walking away from their source of health insurance. In response, some put off retirement just to keep their coverage. Others assume that Medicare will pay for all of their medical needs and don’t budget properly for this significant retirement expense. Of course, both of these extremes are incorrect. In this article, we’ll explore what you can expect to pay for medical expenses once you've retired. With proper planning, you can provide for your health care needs during retirement.
How much should I expect to pay?
A 2015 study by Fidelity Investments found that the typical retired couple (age 65) can expect to pay a total of $245,000 for health care during retirement. If your company offers retiree insurance coverage that number will go down, but fewer and fewer companies offer this benefit. As a result, spending on health insurance and care becomes a significant expense during retirement. Remember of course, that the $245,000 is an estimate of spending over the 25 years of the retiree’s life. Also remember that, as one would expect, medical costs tend to increase later in life.
Where does all that money go?
In America, Medicare usually becomes the primary source of health insurance for retirees. Medicare is a federal insurance program for people who are 65 years or older, and despite the government subsidy, Medicare premiums and deductibles can quickly add up so it is important to plan accordingly. Medicare is divided into different ‘Parts’:
What you will pay for Medicare and your supplemental insurance will vary greatly depending on your income level and the level of insurance you choose. A typical approach is to have Medicare Part A, B, D and a Medicare Supplemental or Medi-gap policy. Most people pay nothing for Part A and about $105 per month for Part B. Part D policies can run between $40 and $500 per month. Altogether, a typical retiree will pay about $3,000 per year for basic medical coverage. Add in a Supplemental Medicare policy and include out-of-pocket expenses and this number runs closer to $5,000 per person per year.
How should I plan?
While those numbers may seem daunting, most retirees can save sufficiently to provide for their healthcare needs by simply having a plan and sticking to it. Once you know how much you will need you can start saving and work towards that goal. I find that fear of the unknown is often worse than the actual situation. If you would like to learn more about medical expenses in retirement, a great resource is the Medicare website. Of course, we would be happy to help you develop a customized retirement plan based on your situation, so please feel free to give us a call.
"Health Care Costs for Couples in Retirement Rise to an Estimated $245,000." Fidelity. Oct. 7, 2015. https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise.
"Medicare 2016 costs at a glance." Medicare.gov. 2016. https://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html.