Steve Coker, CFP
Medical Expenses in Retirement – an update
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 worry about health insurance and put off retirement just to keep their coverage. Others assume that Medicare will pay for all medical expenses and do not budget properly for this significant retirement expense. Of course, both extremes are incorrect. In this article we will explore what you can expect to pay for medical expenses during retirement. With proper planning, you can provide for your health care needs during retirement.
How much should I expect to pay?
A 2022 study by Fidelity Investments found that the typical retired couple age 65 can expect to pay a total of $315,000 for health care during retirement.1 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 $315,000 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 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 $170.15 per month for Part B. Part D policies can run between $60 and $600 per month. However, Medicare has significant ‘gaps,’ including unlimited out of pocket expenses for copays. Therefore, we recommend a Supplemental Insurance policy to fill in those gaps in Medicare. While there are many options, prices typically run between $174 and $372 per month. Once you add together these costs, averages typically run $5,300 per person per year once both spouses are on Medicare.
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. Fear of the unknown is often worse than the actual situation. If you would like to learn more medical expenses in retirement a great resource is the Medicare website at https://www.medicare.gov/. 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.